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Whole-of-life insurance

Is whole-of-life insurance right for me?

published: 06 September 2021
Read time: 5 minutes

Whole of life cover is guaranteed to pay out, no matter how long you live. Find out if a whole of life policy might suit your family’s needs

What is whole of life insurance?

Whole of life insurance (also known as whole life assurance) is a policy that covers you for life. Because there’s no fixed term, your insurance will never expire until you die. 

When you take out an ordinary life insurance policy, it will cover you for a specific period of time – which can be anywhere from one year to 30 years or more. This is known as term life insurance. Whole of life insurance works differently – you buy a single policy, and your loved ones are guaranteed to receive a payout whenever you die.

Whole of life cover will remain valid as long as you keep paying your premiums – but with some policies, you might be able to stop paying premiums once you reach a certain age, and stay protected.

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

Both whole of life insurance and term insurance are designed to make sure that your loved ones won’t face financial difficulties once you pass away – but they work in very different ways.

Whole of life insurance:

Term insurance:

• Pays out whenever you pass away

• Only pays out if you die during a set period of time

• You might be able to stop paying premiums after a certain age

• You’ll need to keep paying premiums as long as your policy lasts

• Often includes an investment, which can be cashed in

• No investment element

• Usually more expensive

• Usually cheaper

How does whole of life insurance work?

Whole of life cover works much like any other life insurance policy. When you take out whole of life cover, your insurer will charge you monthly or annual premiums to maintain your cover. Once you pass away, your loved ones will benefit from a tax free payout to help cover their costs.

However, unlike most life insurance policies, whole of life insurance might include an investment element. This means that the money you pay with your premiums will be put into an investment fund. 

If the fund does well, the value of the lump sum your loved ones receive will increase. You could also cash out on your investments yourself. But if the fund does poorly, your premiums are likely to rise to make up the difference.

What types of whole of life policy are there?

There are two basic types of whole of life insurance:

  • With balanced cover, your premiums will stay the same as long as you keep your policy. The amount your survivors will receive also stays the same.

  • With maximum cover, your insurance premiums are invested. If your investments do well, you’ll get cheaper premiums or a bigger lump sum once you die. You could also withdraw extra cash from your policy. But the cost of your premiums can go up as well as down – and it might end up being more than you can afford

How much does whole of life insurance cost?

Whole of life cover can cost much more than a traditional life insurance policy. This is because insurers know that whatever happens, they’ll end up having to pay out on your policy at some point down the line.

However, there are steps you can take to reduce the price of whole of life insurance. Your insurer wants you to be healthier and live longer, since that means you’ll be paying more money through your premiums. You might be able to get cheaper whole of life cover by taking sensible steps to improve your health, such as quitting smoking, losing weight, or cutting your alcohol intake. 

Remember that whole of life cover means you’ll have to keep paying premiums after you retire, so think carefully about whether it’s something you can afford – not just now but throughout your life. 

Is a whole of life insurance pay out tax free?

When your whole of life insurance policy pays out, it’s technically tax free. However, that doesn’t mean it’s always safe from the taxman.

Once you pass away, the lump sum from your life insurance becomes part of your ‘estate’ – that’s everything you own that’s passed on to somebody else, including any investments, personal possessions such as jewellery, and your house. If your estate is worth more than £325,000, everything above that limit is subject to an inheritance tax of 40%.

If you’re worried that your loved ones might end up facing a hefty tax bill in an already difficult time, there are steps you can take to protect your insurance from tax. The best way to do this is to place your life insurance in a trust

When you set up a trust for your life insurance, it’s technically the trust that owns your policy and not you – so there’s no inheritance tax once you pass away. You can find out more in our guide to life insurance and inheritance tax.

Can I cancel whole of life insurance?

It’s usually possible to cash in your whole of life insurance policy if you decide you no longer need it, or if you can no longer afford your premiums. However, you’ll probably have to pay a pretty heavy penalty for cancelling your life insurance early. 

The value of your insurance might also be less than you expect when you cancel your policy. If you cash in on your insurance, your provider will pay out a certain amount of money – this is known as the ‘surrender value.’ However, the surrender value will usually be much less than the amount you’ve already paid in premiums, especially if you’ve only had the policy for a few years.

Can I get a joint whole of life insurance policy?

It’s absolutely possible to get a joint whole of life insurance policy, and getting a joint policy is a good way to reduce your premiums.

You have extra options when you buy a joint whole of life insurance policy. Normally, joint policies work on a ‘first death’ basis – they pay out when the first policy holder dies, and afterwards the insurance expires. 

But with whole of life insurance, you might also be able to get a ‘second death’ policy, which lasts until both policy holders have died. This could be useful if you and your partner want to protect your children from extra costs once both of you have passed away.

If you want to find out more, see our guide to joint life insurance

Is a whole of life insurance policy right for me?

Everyone’s financial needs are different, so before you choose whole of life insurance you should carefully consider all your options to see if they’re right for you and your family.

Whole of life insurance is usually much more expensive, and your premiums might go up beyond your ability to pay. However, it does come with the added peace of mind of knowing that your insurance will never expire, and the value of your lump sum might increase with investment.

If you’re mainly looking for life insurance to cover your mortgage, a traditional term insurance policy might be best for you. But if you want to protect your loved ones from funeral costs or inheritance tax, a whole of life policy could suit your needs. 

How can I get whole of life insurance?

MoneySuperMarket doesn’t currently offer whole of life insurance through our price comparison engine

However, if you’re over 50, you can buy an over 50s life insurance policy that works in much the same way, lasting your entire life with no fixed term. However, over 50s life insurance isn’t invested, and you won’t be able to cash in on your policy before it matures.  

If you’re under 50, you could also get a great deal on other types of life insurance that might also suit your needs, including level term and decreasing term policies. 

But if you’re certain that you want an invested whole of life insurance policy, your best option is to consult a financial adviser. They’ll be able to walk you through the various policies available and lay out all their risks and benefits, so you can find the policy that’s right for you. 

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