Whole-of-life insurance

Is whole-of-life insurance right for you?

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Learn more about whole-of-life insurance and whether it's the best type of life cover for your needs.

Whole-of-life insurance pays a tax-free lump sum to your loved ones in the event of your death.

There is always a payout because this type of life insurance covers you for life, so whole-of-life insurance quotes are often pricier than term life insurance, which provides cover for a fixed term. 

What is whole-of-life insurance?

Whole-of-life insurance, also known as whole-of-life assurance, is life insurance that covers you for the entirety of your life, rather than for a set term of say 30 years. It means your family will receive a payout however long you live, as long as you keep paying the premiums.

With some policies you stop paying premiums at a certain age, while with others you continue paying until you pass away.

What is the difference between whole-of-life insurance and term insurance?

Whole-of-life insurance should guarantee your loved ones a payout whenever you die, while term insurance only pays out if you pass away within the timeframe set when you take the cover out. This can be timed to coincide with paying off your mortgage, retiring, or perhaps the 18th birthday of your youngest child.

Simply put, term insurance is designed to protect your loved ones if you die unexpectedly while you’re still young, whereas whole-of-life cover should pay out even if you live to be 100 or more.

How much does whole-of-life insurance cost?

Whole-of-life insurance is usually more expensive than term life insurance because insurers know they’ll have to pay out at some point. The cost depends on your age, your health, and your lifestyle, as well as the size of the payout you want your loved ones to receive.

As a whole-of-life policy lasts for the whole of your life, you may have to pay premiums long after you retire. So think about whether you’ll be able to afford this, as stopping paying means no payout – although you may be able to cash in your policy.

With some policies, you stop paying premiums at a certain age. The earlier this is, the more expensive your premiums are likely to be. 

How does whole-of-life insurance work?

There are three main types of whole-of-life insurance. Most plans are linked to an investment fund, which means the premiums and the payout can change over time depending how the investments perform. These are known as investment-linked, or unit-linked, policies and come in two kinds:

  • Balanced cover – also known as standard cover, this is often more expensive to begin with because the premiums are calculated to stay at the same level for the whole policy term
  • Maximum cover – this is often cheaper at first, but there is a higher chance your premiums will increase as you get older

You can also take out whole-of-life plans that charge fixed premiums for a fixed amount of cover. So from day one, you know how much the policy will cost per year or per month, and how much it will pay out.

Either way, it’s important to check the provider’s charges, and read the small print of the policy to make sure you choose the type of whole-of-life insurance that best suits your needs.

Can I cancel whole-of-life insurance?

You can usually cash in your policy if you decide you no longer need – or can no longer afford – whole-of-life cover. However, the so-called ‘surrender value’ is often a lot lower than the total you’ve paid out in premiums, particularly during the early years. 

Is whole-of-life insurance right for me?

Whole-of-life insurance can be a good way to help your loved ones cover any costs associated with your death, such as inheritance tax (IHT) or the bill for your funeral. But if your main concern is paying off your mortgage or supporting your dependents, term life insurance can be a more cost effective option.

If you do choose whole-of-life cover, consider writing the policy ‘in trust’ so your family does not have to pay IHT on the otherwise tax-free payout.

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