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 award-winning broker service, like the one we provide at Reassured, you can compare both term and whole of life quotes (through Reassured's advised team) to find the right policy that meets your unique needs.

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

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 a monthly premium for your cover Pay a monthly premium for your cover
Can be taken out on a joint basis with most providers Can be taken out on a joint basis with some providers
Terminal illness comes as standard with policy Doesn’t 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 help:

  • 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 help 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 help cover costs that will also reduce over time, (such as a repayment mortgage).

Whole of life insurance

Whole of life insurance provides life long cover, this means that your loved ones will receive 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 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 to help:

  • Cover funeral costs
  • Take care of family living expenses
  • Leave 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  

Life Insurance Calculator

Calculate how much life insurance you may need by filling in the costs you’d like your policy to cover.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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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.

Whole of life insurance and term-based life insurance taken out on a joint basis could save you up to 25% compared to two single policies.

Get in touch with Reassured to find out the joint policy options available.

Life insurance for mortgage

One of the main uses of term life insurance is to help protect your mortgage.

If the worst were to happen to you, a life insurance pay out could help to 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 help 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 help cover funeral costs or left as an inheritance.

Life insurance for parents

Term life insurance can be beneficial to parents as a way of helping to protect 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 help 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 pay out will help cover your family’s living costs no matter when you pass away.

A 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 £20,000) 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 covers you for life and pays out when you pass away.

Term life insurance Whole of life insurance
Can take out a sum assured of up to £1,000,000 (depending on your personal circumstances and budget) Can take out a sum assured of up to £1,000,000 (depending on your personal circumstances and budget)
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 receive a payout when you pass away
Fixed pay out amount with level term life insurance Provides peace of mind that loved ones will be taken care of when you pass away
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/minimise 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 dedicated team who can help you write your life insurance in trust on the majority of the policies we sell.

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 help cover any large debts as well as whole of life to provide an inheritance.

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

And the best part is we don’t charge a fee for our quotes.

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

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