Whole of life or term insurance

When taking out life insurance you typically have two main choices; cover that lasts for life or cover that lasts for a set period of time.

Term-based cover lasts for a specified period of time, whilst whole of life cover lasts for the rest of your life and guarantees a pay out.

Both provide protection in case the worst were to happen, but how do you know which is right for you?

By using an FCA regulated broker service, like the one we provide at Reassured, you can compare both term and whole of life quotes to find the policy that best meets your unique needs.

Keep reading to find out the differences between term life insurance and whole of life insurance…

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What is the difference between whole life and term insurance?

The main difference between term life insurance and whole of life insurance is the length of cover.

Term life insurance provides cover for a set time period that is agreed at the point of application, whereas whole of life insurance provides lifelong cover.

Term life insurance Whole of life insurance
Tends to be the cheaper option Tends to be more expensive
Provides cover for a specific period of time (the term) Provides cover for the rest of your life
Will pay out if you pass away during the term Will pay out when you pass away (pay out guaranteed)
Pay a monthly premium for your cover Pay a monthly premium for your cover
Can be taken out on a joint basis Can’t be taken out on a joint basis
Terminal illness comes as standard with policy Not all whole of life policies come with terminal illness cover
Can add critical illness cover for an additional cost Can't add critical illness element
Possible cover will expire without a pay out being made If taken out early in life, possible to pay more into the policy than sum assured

Term life insurance

Term life insurance will provide you with cover for a specified period of time, usually from 2 years up to 40 years.

You’ll pay a monthly premium for your cover and if you pass away during the term, a pay out is issued.

You can take out cover on level or decreasing terms.

Level term life insurance provides a fixed sum assured (pay out amount).

Which means no matter when you pass away (during the term), your loved ones will always receive the same amount.

In contrast, with decreasing term life insurance, your sum assured will reduce throughout the lifetime of your policy.

A pay out from a term life insurance policy can be used to:

  • Pay off the mortgage
  • Pay off other large debts
  • Contribute to family living costs
  • Cover funeral costs

Level term or decreasing?

Whether you choose level or decreasing term life insurance will depend on what it is that you want to cover.

As your sum assured remains fixed with level term life insurance you may choose this to cover any large expenses if the worst were to happen to you, (such as paying off a mortgage or other debts, as well as covering family living costs).

As a pay out from decreasing term life insurance reduces over time, you may choose this to cover costs that will also reduce over time, (such as a repayment mortgage).

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Whole of life insurance

Whole of life insurance provides life long cover, this means that your loved ones are guaranteed a pay out when you pass away, not if.

You’ll pay a monthly premium for your cover. To keep your cover in place, you’ll need to pay premiums for the rest of your life.

Due to this, whole of life insurance is often best suited to those later on in life who’re still in good health.

Taking out a whole of life policy at a young age could result in you paying more into the policy than it’ll pay out to your loved ones.

Typically, whole of life insurance is used for:

  • Covering funeral costs
  • Taking care of family living expenses
  • Leaving as an inheritance

How much should I pay for life insurance?

How much you’ll pay for your life insurance is dependant on personal circumstances.

With both term life insurance and whole of life insurance you’ll need to provide information about your health and lifestyle, such as:

  • Your age
  • Your medical history
  • Smoking status
  • Level of cover (sum assured)

This is so the insurer can work out the level of risk you’ll pose and, therefore, how much you’ll pay for your premium.

Term life insurance tends to be cheaper than whole of life insurance because your cover only lasts for a certain period of time.

With whole of life insurance, due to cover lasting for life, you’ll often pay more on a monthly basis as a pay out is guaranteed.

If you take out a whole of life policy at a young age, you could end up paying more into the policy than it will pay out.

Term life insurance Whole of life insurance
You’ll be asked to provide medical information at the point of application so insurers can calculate level of risk You’ll be asked to provide medical information at the point of application so insurers can calculate level of risk
The length of cover will also have an impact on how much you pay for your premium As cover lasts for life, premiums tend to be higher
Tends to be cheaper as a pay out is not guaranteed Typically most suited to those later on in life who’re still in good health
As your risk to the insurer reduces each year, decreasing term life insurance is often the most cost-effective solution

How much life insurance do you need?

Enter your financial commitments to understand the level of cover you require.

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£121,687 is the estimated average outstanding mortgage per household in the UK.

Our property is generally the largest financial commitment any of us will make.

Your life insurance should cover this significant debt should you no longer be around.
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According to Money Advice Service, full-time childcare in the UK now costs £242 a week.

The loss of a parent could result in the need for additional childcare whilst the surviving parent increases their hours to account for lost income.

Your life insurance cover should factor in this additional required outgoing.
£
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The average level of debt (minus a mortgage) in the UK is £15,385.

Factoring in any outstanding debts in your name when arranging life insurance ensures this burden is not passed to loved ones.
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You may wish to leave your loved ones an inheritance or lump sum gift upon your passing.

Factoring in the gift amount when arranging your cover will ensure the pay out amount will be sufficient to provide your loved ones with this selfless gesture.
£
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According to SunLife, the average cost of a UK funeral is now £4,417, whilst the total cost of dying is £9,493.

This is a 130% increase over the past 16 years and shows no signs of slowing down.

A significant cost which should be factored into the amount of life insurance you secure.
£
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If you are one of the 65% of the UK who are lucky enough to have savings, this could be used as protection if you were to pass away.

Any pay outs from existing life insurance policies and investments can also be used as financial protection for your loved ones if you were no longer around.

Factor this into your required cover amount.
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Your total cover estimate

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Let us find your best quote.

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Joint life insurance

A joint life insurance policy covers two lives simultaneously.

There’s one application and one policy. However, this means there’s only one pay out (usually upon the first death).

Once a claim has been made, the policy will expire and the surviving partner will need to find new cover.

When taking out term-based life insurance, you have the option of taking out a policy on a joint basis which can save you up to 25% compared to two single policies.

However, due to guaranteeing a pay out, whole of life insurance doesn’t offer this option.

Therefore, if looking for a joint policy, term-based life insurance may be the best option for you.

Life insurance for mortgage

One of the main uses of term life insurance is protecting your mortgage.

If the worst were to happen to you, a life insurance pay out could ensure that your loved ones can stay in the family home.

Level term life insurance is best used to help cover an interest-only mortgage as your sum assured remains fixed.

If you’ve a repayment mortgage, decreasing term life insurance is best suited as your sum assured can reduce in line with your remaining mortgage balance.

A whole of life insurance pay out could also provide enough funds to cover the remainder of your mortgage, as well as providing additional funds.

However, as this type of cover is typically taken out by those later on in life, it’s more commonly used to cover funeral costs or left as an inheritance.

Life insurance for parents

Term life insurance can be beneficial to parents as a way of protecting future living expenses for their children.

As your children get older, they become less reliant on you financially.

If you have younger children, you may choose to take out level term life insurance as your sum assured will remain fixed.

This will allow your pay out to cover living costs if the worst were to happen.

If you have older children, you may choose decreasing term life insurance as their need for financial help will reduce as they approach adulthood and can support themselves.

In contrast, you may want whole of life insurance in place to provide peace of mind that your family’s living costs will be taken care of no matter when you pass away (as a pay out is guaranteed).

A guaranteed pay out from a whole of life insurance policy can also be left as an inheritance for your children to enjoy as they wish.

How is life insurance paid out?

Term life insurance:

If you pass away during the term of your life insurance policy, your loved ones will be able to make a claim.

As long as the claim is valid, your beneficiaries will receive a pay out to a UK bank account.

It’s important to be aware that with term-based life insurance, a pay out will only be made if you pass away during the term.

If you out live your policy, no pay out is made and you’ll need to find new cover.

Whole of life insurance:

As long as your premium payments are up to date, your loved ones will be able to make a claim no matter when you pass away.

As long as the claim is valid, your beneficiaries will receive a pay out to a UK bank account.

Life insurance no medical

With term life insurance you’ll need to provide medical information in order for insurers to calculate the risk you pose.

Due to this reason, it’s unlikely to find term life insurance that won’t ask questions related to your health.

Any term policies that don’t ask for medical information will often come with loaded premiums to compensate for the unknown risk.

In contrast, it’s possible to obtain whole of life insurance with no medical questions asked in the form of an over 50s plan.

Over 50s plans guarantee acceptance to UK residents aged 50 – 85. Once accepted, you’ll be covered for the rest of your life, with no need to provide medical information.

However, due to the unknown risk you pose, insurers often add a waiting period to the policy.

Typically, the waiting period will be the first 12 – 24 months of the policy. If you pass away during this time, no pay out is made. (Although any premiums paid will be refunded).

Over 50s plans also come with loaded premiums and a restricted sum assured (up to £25,000) to compensate for the unknown risk to the insurer.

Benefits of whole of life insurance vs term life insurance

Regardless of whether you take out term life insurance or whole of life insurance, you’ll benefit from the reassurance of knowing that you’ve made the selfless decision to protect your loved ones.

The main benefit of term life insurance is that it tends to be a more cost-effective solution.

The main benefit of whole of life insurance is that it guarantees a pay out when you pass away.

Term life insurance Whole of life insurance
Can take out a sum assured of up to £1,000,000 Can take out a sum assured of up to £1,000,000
Offers more flexibility than whole of life insurance as you can choose your policy length Provides lifelong cover
Good for those looking for life cover who are on a budget Loved ones are guaranteed a payout
Fixed pay out amount with level term life insurance Provides peace of mind that loved ones will be taken care of when the worst happens
Term life cover tends to be cheaper than whole of life Fixed pay out amount

Terminal illness cover

Terminal illness cover comes as standard with any term life insurance policy taken out through Reassured.

Most whole of life insurance policies now also offer terminal illness cover (although this will depend on the provider).

Both term and whole of life policies arranged through Reassured come with terminal illness cover as standard.

Terminal illness cover will allow you to make an early claim on your life insurance policy if you’re diagnosed with a life-threatening illness and predicted to pass away within 12 months.

This pay out can help to pay for medical treatment, hire a carer or make any necessary adaptions to your home.

You may want to read our article on terminal illness vs critical illness cover.

Writing your policy in trust, (avoid 40% inheritance tax)

Both term-based life insurance and whole of life insurance can be written in trust.

Writing your policy in trust involves placing someone (a trustee) in charge of your policy after you’ve passed away.

They’ll then be responsible for ensuring your pay out is distributed as per your wishes.

When you write your life insurance in trust it detaches your policy from your estate, allowing your beneficiaries to receive a larger pay out amount due to reduced inheritance tax.

With a whole of life policy, you’ll often have a larger estate than with a term life insurance policy, making it even more important to write your policy in trust so that your loved ones can receive the full pay out amount.

Your loved ones will also be able to avoid the probate process, meaning they can receive the pay out faster.

At Reassured, not only can we help you through the whole application process but we also have a customer service team who can help you write your policy in trust.

Compare term and whole of life insurance quotes

Your own personal needs and budget will determine whether term or whole of life insurance is right for you.

However, it doesn’t necessarily have to be one or the other. It’s possible to take out more than one life insurance policy.

Depending on your budget, you could take out term-based life insurance to cover any large debts as well as whole of life to provide an inheritance.

By using our FCA registered broker service you can compare both term and whole of life quotes to find the right solution.

And the best part is our award-winning service is completely free for you to use.

Why not get in touch and start your life insurance journey today?

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