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 cover 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, either guaranteed or reviewable 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 level of 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 don’t want to keep renewing your policy after the term expires.
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.
Why might whole of life cover not be suitable?
Policyholders generally take out life insurance to provide protection for their mortgage debt and/or their dependents future. However, once the mortgage is paid off and the children have left home, many no longer require this level of cover. If this is all you require protection for, a term based policy may be better suited to your needs and premiums would be cheaper.
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.
If you are over the age of 50 and in poor health, you may be better suited to a specific over 50’s life insurance policy, which also guarantees to pay out. These policies normally do not require a medical exam.
The cost of whole of life insurance
Whole of life cover is more expensive compared to other types of life insurance, like level or decreasing term. 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 past 90 or even 100 years. So, it is important you understand the details of your particular policy.
As with all life insurance, the cost of your whole of life premium will be influenced by a number key factors, including:
- 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 compared to 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 and have a fixed income.
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.
Write your whole of life policy in trust
You could benefit from 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.
- Larger pay out, (40% inheritance tax can be avoided)
- Faster claims process, (do not have to wait for probate to be granted)
- Greater control of who gets the pay out and when.
Whole of life insurance in summary:
- Guarantees to pay out a lump sum
- Premiums can be fixed
- Lump sum can provide an inheritance, to 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 the pay out fixed, inflation might mean lesser benefit in real terms
- Premiums could go up if your policy is reviewable.
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.
Talk to Reassured today on 0808 115 4475 to compare whole of life insurance quotes and how it could help protect your loved ones. Alternatively Start Your Quote online today – it only takes 2 minutes.