What is whole of life insurance?
A whole of life insurance policy guarantees to pay out a lump sum to your beneficiaries after you die.
As a result whole of life is sometimes referred to as life ‘assurance’, because your policy is assured to pay out at some point.
Whole of life belongs to the ‘cash value’ category of life insurance and differs from the more common ‘term’ policies, which only pay out if you die during the set term.
“For whole life insurance the average claim payment was £5,900 with almost all (99.99%) of claims paid. In total £389 million was paid out in 2015.” – (source: abi.org.uk)
Just like other life insurance policies, you pay a monthly premium and when you die, the policy pays out a fixed lump sum to your loved ones.
However, because a pay out is guaranteed (assuming you pay your premiums) the cost is generally higher compared to a term based policy, offering the same cover.
(Please note, ‘investment’ whole of life policies do not guarantee a fixed lump sum pay out, however, we only sell ‘non-investment’ policies).
Why might you want whole of life insurance cover?
Common reasons to take out a whole of life policy include, to:
- Cover funeral expenses, (average UK cost in 2017 was over £4,000) – Visit www.moneyadviceservice.org.uk to learn more
- Provide children or grandchildren with a lump sum inheritance
- Protect family from large inheritance tax bills
- Clear outstanding debts
- Protect sizeable assets
- Help dependents maintain their standard of living.
As whole of life lasts as long as you live, it is not only good for those who want a guaranteed pay out, but also if you do not want to keep renewing your policy.
Whole of life is also sometimes employed as an extra level of cover, over and above a term-based policy, which for example may protect your property. Leaving your whole of life cover to provide an inheritance or cover funeral costs.
Obviously, this is subject to your budget and personal circumstances.
The cost of whole of life insurance
This is because the insurer is definitely going to pay out on the policy, therefore they need to set premiums at a level, so to mitigate their risk.
Most policies require you to keep paying in until you die, which could become very expensive if you live well past 90 years. So, it is important you understand the details of your policy.
As with all life insurance, the cost of your premium will be influenced by a number key factors:
- Your age
- Your weight and body mass index (BMI)
- Your lifestyle, such as whether you are a smoker
- Your level of cover, (the size of the pay out)
- Your general health and wellbeing
- Any pre-existing medical conditions.
Some insurers may promise not to change your premiums for the first 10 years of the policy but may reserve the right to review your cover in the future.
According to the financial ombudsman, most of the complaints made about whole of life insurance are related to insurers hiking the cost of the policy as the policyholder ages.
We believe the best way to obtain the cheapest premium and the best policy is to compare multiple quotes.
You could always use a free broker service, like Reassured, to compare insurers on your behalf.
Guaranteed vs reviewable premiums
Guaranteed premium whole of life policies are generally more expensive initially compared with reviewable plans.
Guaranteed premiums ensure the amount you pay in each month and the sum assured remain fixed throughout the policy. This is great if you like certainty, for example, if you are living on your pension.
In contrast, the premiums you pay on a reviewable policy are reviewed after a set period of time. The first review usually being after 10 years.
It is therefore important you understand when your reviews are due to take place and to consider whether you will be able to afford increased premiums going forward.
Why might whole of life cover not be suitable?
Policyholders generally take out life insurance to provide protection for a mortgage and/or their dependents future.
However, once your mortgage is paid off and the children have left home, you may no longer require this level of cover.
Whole of life policies last a lifetime, so you will need to make sure that you are able to continue paying your premiums into old age.
If, for example, you would struggle to meet the cost of high premiums once retired, whole of life is probably not the best option.
Write your whole of life policy in trust
You could benefit from using our free Reassured trust service.
By writing your policy in trust, the pay out will be paid directly to your beneficiaries and not form part of your estate. Therefore, avoiding 40% inheritance tax and the lengthy probate process.
- Avoid or minimise 40% inheritance tax (over the £325,000 threshold)
- Avoid the lengthy probate process (for a faster pay out)
- Have more control over who gets the funds and when.
Whole of life insurance in summary:
- Guarantees to pay out a fixed lump sum
- Monthly premiums can be fixed
- Pay out can provide an inheritance, pay for funeral or cover inheritance tax
- Can be written in trust to avoid 40% inheritance tax and probate
- Could be set up as a joint policy, (to pay out on either the first or second death)
- Optional terminal and/or critical illness elements.
- Premiums more expensive than term policies
- You may pay your premiums well into old age
- If you stop paying your premiums your cover will cease
- If your premiums are guaranteed and pay out fixed, inflation might mean lesser benefit in real terms
Why use Reassured to compare whole of life cover?
- We will scan the market, finding you the most suitable and competitive quotes
- 13,500+ people cannot be wrong! We have an ‘Excellent’ average Trustpilot rating of 9.6/10
- We are completely independent and impartial
- We never charge you a fee for our broker services
- There is absolutely no obligation to take out the cover we find
- We are non-advised – which means we listen to your unique circumstances and find the most suitable policies.