Whole of life insurance

A whole of life insurance policy guarantees to pay out a cash lump sum to your beneficiaries after you pass away.

The cover protection lasts for as long as you live, hence the policy name whole of life.

Whole of life is actually a form of life assurance, as 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 2018 (99.98%), totalling over £577 million - (source: abi.org.uk).

Taking out a whole of life policy whilst young could result in you paying more into the policy than it will pay out.

This is because you are required to continue paying premiums for the rest of your life, (and no one knows how long that will be).

As a result, the longer you live, the more you will pay into the policy, even though the sum assured remains fixed.

Equally, the cost of your premiums takes into account your health.

Therefore, for those in poorer health, the monthly cost may be significant enough that it is not a cost-effective option.

In this scenario, an over 50s plan (effectively life insurance with no medical questions) may be more appropriate.

Whole of life insurance is often referred to as guaranteed life insurance.

Whilst medical information is required, meaning that acceptance is not guaranteed, once the cover is in place, a pay out is.

Cover lasts for life, meaning that it does not matter at which point during the policy you pass away, your loved ones will receive a pay out.

These guaranteed life insurance policies paid out 99.99% of claims in 2015, making them the policy type with the highest pay out rate.

It's this guaranteed pay out which causes whole of life to be known as such.

There are typically two different types of whole of life insurance policy; investment and non-investment.

(These are sometimes known as with-profit and non-profit whole of life policies).

A non-investment whole of life policy requires you to pay fixed premiums and after you pass away your beneficiaries receive a fixed amount.

This allows you the security of knowing exactly how much your loved ones will receive.

However, depending on how long you live, the pay out value may be affected due to the effects of inflation.

An investment whole of life policy, on the other hand, invests a proportion of your monthly premiums.

As a result, the amount your beneficiaries receive may be significantly higher or lower dependant on the performance of the invested proportion.

Due to the level of risk associated with investment policies, at Reassured we only offer non-investment policies, ensuring you certainty on the pay out amount.

Unlike traditional term-based life insurance, which lasts for a set period of time, a whole of life policy provides cover for the rest of your life.

Other than the length of the cover, term-based life insurance and whole of life cover are fairly similar.

Both policies commonly allow for a high sum assured (up to £1,000,000) and the proceeds can be used towards whatever your beneficiaries want.

Monthly premiums are based on factors such as your age and health status, therefore, the higher the risk you pose to the insurer, the more you will pay.

Because a claim is inevitable, the cost of whole of life insurance is usually significantly higher.

Generally speaking, whole of life is best suited to those in later life, as taking out this type of policy could result in more being paid into the policy than the sum assured.

Therefore, those who are younger would usually benefit more from a term-based policy to reduce the risk of this happening.

Generally speaking, both whole of life insurance policies and funeral plans are taken out by those in later life.

Whilst the pay out from a whole of life insurance policy can be used to pay for your funeral, it can also be used by your beneficiaries for whatever they want.

In contrast, a funeral plan, as the name suggests, can only be used to pay for a funeral.

The average cost of a funeral has risen by 128%^[1] since 2004 and it shows no signs of slowing down.

This highlights the need to address how your loved ones will provision for your ceremony.

Whilst a funeral plan allows you to lock in today’s prices, they are often criticised for not covering all third-party costs, (doctors’ fees, minister fees etc.).

Whereas, whole of life policies can be used to cover the full cost of your funeral but do not allow you to avoid future price rises.

They are also suitable if you are looking to cover the cost of your funeral alongside other expenses; outstanding debts, an inheritance or to help with day-to-day living costs.

Some funeral plans, however, do allow for third-party costs to be covered, therefore if this is your only reason for arranging cover, this option may be more suitable.

Simply get in touch with one of our award-winning team and we can help you find the best solution to suit your needs.

Whole of life insurance can be taken out as a joint policy with some providers we work with.

Joint whole of life insurance covers two lives simultaneously and will pay out only once upon the first death.

Simply get in touch to compare quotes for both whole of life joint cover and individual cover.

Whole of life insurance does not allow you to add critical illness cover as part of your policy.

However, it is possible to take out a standalone critical illness policy, which would mean paying a separate premium.

This means that if you were diagnosed with a serious, but not terminal illness, you could make a claim.

These funds could then be used to replace a lost income, fund property alterations or simply to enjoy with your family.

Although it is possible, you would have to make a judgement on whether taking out both whole of life and critical illness cover is cost-effective.

Often people take out whole of life cover with the intention of protecting their family from an inheritance tax (IHT) bill they will be required to pay.

Inheritance tax is currently charged at 40% on anything over £325,000. This includes any property, savings, possessions and your life insurance proceeds.

Therefore, for those with a particularly large estate, the inheritance tax bill alone could be significant.

In this instance, a whole of life policy can guarantee a pay out so that when the day comes, this tax bill is covered, and the loved ones will receive the full value of your estate.

In order for this to be effective, it is best to write your whole of life insurance policy in trust, (see below).

Whether or not whole of life insurance is suitable for you will depend on your personal circumstances and the type of cover you require.

As discussed, whole of life insurance tends to be most appropriate for those in later life but who still boast good health.

This allows them to benefit from lower premiums due to their wellbeing, whilst reducing the likelihood of living long enough to pay more into the policy than the overall sum assured.