What is whole of life insurance?
A whole of life insurance policy guarantees to pay out a cash lump sum to your beneficiaries after you die. You continue to pay premiums for as long as you live, hence the name whole of life.
This differs from the more common term-based policies, which are only valid for a specified period of time (or term). This means premiums are only paid during this term, but if you do not die within this time frame no pay out is made and the policy expires.
As a result, whole of life cover is sometimes referred to as whole of life assurance because your policy is assured to pay out at some point, provided you continue to pay your premiums.
Almost all whole of life insurance claims were paid out in 2015 (99.99%), totalling £389 million. – (source: abi.org.uk)
There are 2 kinds of whole of life cover:
- The simplest kind, and the type we sell at Reassured is known as non-investment. Here you pay for policy cover until you pass away, at which time your loved ones receive a guaranteed cash lump sum.
- There is also an investment whole of life option, which we do not sell. Here some of your premium is invested by the insurer and the final pay out sum is dependent on how the investment part of your policy performs.
Is whole of life insurance for you?
As a result of a pay out being guaranteed, assuming you pay your premiums, the monthly cost is generally higher compared with term-based policies offering similar coverage.
Whole of life policies are best suited to those who want the certainty of a pay out, as well as for those who have the funds to continue paying their premiums well into old age.
As these policies last as long as you live, it is also a good option if you do not want to continue renewing cover. Once you have taken out a whole of life policy, you should not need to worry about it ever again, even if you fall ill.
On occasions, whole of life is employed as an extra level of protection, over and above a term-based policy, which for example could protect your property. Leaving your whole of life cover dedicated to providing an inheritance or to cover rising funeral costs.
It depends on your personal circumstances, budget and what it is you want to protect. There are various policy options available; over 50 plans, term-based cover or even funeral plans.
We compare all of these options with whole of life insurance below.
Why you may want whole of life insuranceCommon reasons people take out a whole of life policy include, to:
- Cover funeral expenses, (average UK cost in 2017 was over £4,078 – source: SunLife)
- Provide an inheritance
- Protect family from large inheritance tax bills
- Clear any outstanding debts
- Protect sizeable assets
- Help dependants maintain their standard of living.
The cost of whole of life insuranceWhole of life insurance is generally more expensive compared with other types of life insurance, like level or decreasing term.
This is because the insurer is guaranteed to have to pay out on the policy, therefore they set the premiums at such a level, so to mitigate their risk.
Most whole of life policies require you to keep paying premiums until you die, and because no one knows how long they are going to live this could become expensive. So, it is important you understand the details of the policy.
If you cancel your policy or stop paying your premiums, there is no cash-in value to a non-investment whole of life policy and you will lose the money you have invested.
As with all life insurance, the cost of your premium is influenced by a number of key factors, including:
- Your age
- The guaranteed sum assured, (or size of the pay out)
- Your weight/body mass index (BMI)
- Your lifestyle, such as whether you smoke
- 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, the majority of complaints made about whole of life insurance are related to insurers increasing the cost of the policy as the policyholder ages.
We believe the best way to secure the right policy and the cheapest premium is to compare multiple quotes. You could use a free broker service, like Reassured, to compare whole of life insurance quotes on your behalf.
Whole of life vs over 50s planTaking out an over 50s plan is advantageous for many because acceptance is usually guaranteed (if aged between 50 – 85 years) and there is no medical required.
Whereas, whole of life insurance requires either some health-related questions or a medical exam during the application process.
However, if you are in your 50s or early 60s, fit and healthy you may find that a whole of life policy provides a far greater level of protection, for a similarly priced premium.
A regular whole of life insurance plan could provide at least 40% more coverage than its more recognised relation, the guaranteed over 50 plan.
Like whole of life, an over 50s plan is a form of life assurance, as a pay out is guaranteed when you die and there is no set policy term.
Read our blog post on life insurance for over 60s »
Whole of life vs term-based life insuranceThe fundamental difference between whole of life and the more common term-based life insurance is that the latter only pays out if you pass during the policy term. Whereas whole of life cover guarantees to pay out when you die, (not if you die).
As a result of presenting less of a risk to the insurer (because they may not have to pay out), term-based life insurance is generally significantly cheaper. Therefore it is much more common, especially among the younger demographic.
You also have the certainty of knowing how long you have to pay your premiums for, whereas whole of life lasts as long as you do, so it is harder to budget for.
A key factor with term-based cover is your age. If you are in your 60s or older, although you could secure cover, because of the risk you present, insurers are unlikely to offer you a long-term and premiums are likely to be relatively high.
Life insurance vs life assuranceLife assurance and life insurance policies can both provide the reassurance that your loved ones would receive a cash lump sum after you are gone.
The key difference between life assurance and life insurance is that life insurance only covers you for a set period of time, (or term).
In contrast life assurance, like in the form of whole of life, covers you for as long or you live. Guaranteeing a pay out.
Whole of life vs a funeral planThe average cost of a funeral in the UK has risen by an astonishing +112% over the past 13 years.
The average cost is now £4,078 and is projected to rise to nearly £5,000 by 2022. As a result, many in the UK are now provisioning for the future with a form of cover protection.
Which policy option best meets your needs, again, depends on the level of cover you require and what it is you wish to protect.
If you only want to cover the cost of your funeral and nothing else, it could be that a prepaid funeral plan would provide sufficient protection.
However, a whole of life policy would offer you much greater protection if you had other costs you needed to cover, like meeting future living costs or providing an inheritance.
Investment vs non-investment whole of life policiesThere are two types of whole of life insurance; investment and non-investment policies.
Investment policies work by taking a portion of your premiums and investing it to provide returns in line with that of the stock market.
These are higher risk as the pay out can be larger if the stock market is thriving at the time of death, but equally may result in a smaller pay out if there is a dip in the market.
Non-investment policies are lower risk as they ensure a specified amount to be paid to loved ones upon the event of your death.
For this reason, at Reassured, we only offer non-investment policies to our customers and security for those left behind.
Guaranteed vs reviewable premiums
Waiver of premium & critical illness coverYou may want to consider taking out a waiver of premium option with your whole of life policy. This would cover your monthly premiums for a period of time if you were to fall ill and unable to make payment.
By having a waiver of premium in place could enable you to keep your policy active, allowing you to still benefit from vital cover protection.
You may also consider taking out critical illness cover, which would enable you to claim early on your policy if you were to suffer from a condition covered by your policy.
For example, you may require an early pay out to help fund medical fees or necessary adaptations to your home as a result of your illness.
Why might whole of life cover not be suitable?Policyholders generally take out life insurance to provide protection for a mortgage and/or their dependants future.
However, if your mortgage is paid off and the children have left home and are self-sufficient, 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.
If you are over 50 and in poor health, you may be better suited to a specific over 50s plan, which also guarantees to pay out. These policies normally do not require a medical exam.
Write your whole of life policy in trustYou could benefit from using our free Reassured trust service.
By writing your policy in trust, the pay out is paid directly to your beneficiaries and does 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 cash lump sum
- If fit and healthy could provide greater coverage than over 50s plan
- You will not need to renew a policy or take out a new one in later life
- Monthly premiums can be fixed or reviewable
- 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 waiver of premium, terminal and/or critical illness elements.
- Premiums more expensive than term policies
- The application involves some health-related questions or medical
- Difficult to secure cover if you have had health problems
- You may pay your premiums well into old age
- If you stop paying your premiums your cover will cease.
Why use Reassured to compare whole of life insurance?
- We will scan the market, finding you the most competitive whole of life quotes
- 16,500+ people cannot be wrong! We have an ‘Excellent’ average Trustpilot rating of 9.6/10
- We are completely independent and never charge you a fee for our service
- 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.