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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 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).
How does whole of life insurance work?
Upon application, a cover amount is specified and your monthly premiums are calculated accordingly.
Monthly premium payments will then continue for the remainder of your life.
If you stop paying your premiums your cover will cease and your investment wasted.
After you are gone, your beneficiaries can claim on your policy and receive a pay out for the predetermined amount.
Is whole of life insurance right for you?
Whole of life insurance is often well suited for those:
- Looking to secure a guaranteed pay out
- In the later stages of life
- In good overall health and wellbeing.
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 (with no medical questions) may be more appropriate.
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Cost of whole of life insurance
As with standard life insurance, whole of life premiums are calculated using a number of key factors:
- Sum assured
- Age
- Health and wellbeing
- Smoking status
- Medical history
- Pre-existing medical conditions.
Due to a pay out being guaranteed, whole of life insurance tends to be more expensive than term-based cover, but not as costly as an over 50s plan, as the risk to the insurer is known.
All policies provided through Reassured come with fixed monthly premiums, meaning the amount you pay each month will never increase.
Some policies offer reviewable premiums, where the amount you pay may increase if the level of risk you pose to the insurer is deemed to have changed.
This is the most common complaint with regards to whole of life policies, but it is not one you need to worry about if you arrange cover through us.
Occasionally, whole of life policies offer an upper age limit, at which point premium payments will cease (usually around 85-90).
Once you reach this age you will no longer be required to make payments, but your cover will remain valid.
Not all policies provide this and it is more common with over 50s plans, therefore, if this is important to you, it is best discussed at the point of application.
Guaranteed life insurance
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.
Waiver of premium
Occasionally whole of life insurance policies will allow you to implement a waiver of premiums.
Whilst this may cost you slightly more, it does ensure that if you were unable to pay your premiums (maybe if you are too ill to work), your cover would remain.
If this is something you require on your whole of life policy, you should discuss it during the application.
Investment vs non-investment whole of life cover?
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.
Uses for whole of life insurance
Typically taken out by those in later life, whole of life insurance policies tend to be used to cover:
- The cost of your funeral (average cost £4,271 – source: SunLife)
- An inheritance for loved ones
- Contribute towards future family living costs
- Pay inheritance tax if your estate is large.
Often, in later life, your mortgage and other debts have been paid off, however, a whole of life pay out can ultimately be used for anything your beneficiaries deem fit.
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Whole of life insurance vs term-based life insurance
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.
Whole of life insurance vs over 50s plan
Both whole of life policies and over 50s plans are forms of life assurance, meaning a pay out is guaranteed.
They both cover you for the rest of your life, provided you continue to pay your monthly premiums.
After you are gone, your beneficiaries can use either pay out for whatever they deem fit.
Due to the medical information required, whole of life cover is often better suited to those over 50, who are in good health.
Those in poorer health may find that whole of life premiums are not a cost-effective option.
The key difference is over 50s plans do not require any medical information during the application to be supplied.
Acceptance on an over 50s plan is also guaranteed, whereas whole of life is subject to the medical information you provide.
Whole of life policies generally speaking provide a much larger sum assured, therefore, depending on the coverage you require, this could also affect its suitability.
Whilst it is possible to obtain whole of life cover, which provides an upper age limit for premiums to cease, this tends to be much more common with over 50s plans.
As a result, whole of life policies tend to be better suited to those in the later stages of life, who require a large sum assured and are still in good health.
Read our blog post on life insurance for over 60s »
Whole of life insurance vs funeral plans
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 122% 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.
Benefits of whole of life insurance
Whilst whole of life cover may be more time consuming to set up than an over 50s plan, the sum assured available is likely to be significantly higher.
It also offers more flexibility for your beneficiaries than a funeral plan.
For those who are younger and in good health, you are likely to reap the benefits of lower monthly premiums.
Whole of life policies also provide a guaranteed pay out (unlike term-based cover) and there is no expiry date, meaning you will never be required to renew.
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Joint whole of life insurance
Unfortunately, due to a pay out being inevitable with whole of life insurance, the risk to the insurer is too high for them to offer joint cover.
Therefore, for couples requiring whole of life cover, the only option is to take out two single policies.
Cancelling a whole of life policy
As stated, a whole of life policy lasts for life, requiring you to pay premiums until your dying day in order for the cover to remain valid.
Therefore, if you terminate or stop paying your premiums, the policy will be cancelled and any money you have paid in will be lost.
Most importantly, your loved ones will not receive a pay out upon your passing.
Some investment policies will provide the option to cancel your policy and pay a surrender value, allowing you to receive some funds back.
Whole of life insurance with critical illness
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.
Whole of life insurance with terminal illness
Commonly, most whole of life insurance policies now offer terminal illness cover as standard.
This means, if you were diagnosed by a medical professional and given less than 12 months to live, you could claim on your life insurance policy before you die.
In this instance, a pay out could be used to pay for a carer, offer peace of mind that your family is financially stable or simply allow you to enjoy your final days with your loved ones.
Whole of life policy inheritance tax
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).
Writing your whole of life insurance in trust
When you pass away, by default the value of your whole of life insurance policy forms part of your estate.
However, by writing your whole of life policy in trust it allows you to detach its value from your estate.
This means that not only will your loved ones receive the full amount but that the total amount they pay inheritance tax on will also be reduced.
Writing your whole of life policy in trust also allows your loved ones to avoid the probate process in order to obtain the funds.
This will allow them faster access which is ideal if the cover was put in place to cover the cost of your funeral.
Finally, this process will allow you more control over how the pay out from your policy is distributed.
When you write your whole of life policy in trust you sign over the rights to a trustee who will then carry out your wishes accordingly (although this is at their discretion).
Is whole of life worth it?
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.
Whole of life insurance calculator
Some websites provide a whole of life insurance calculator to determine how much you would pay each month for the desired level of cover.
However, the process in which your premiums are calculated is so subjective that the outcome of these calculators is rarely accurate.
Elements such as your age, health, family history and smoking status are all taking into account when applying for a policy.
None of which are taken into consideration when using a whole of life insurance calculator.
To avoid disappointment, it is best to obtain a free quote from an expert, such as a member of our team.
They will be able to give you a personalised quote based on all of the relevant information.
Compare quotes, save money on your policy
The cost and cover of whole of life insurance can vary significantly between different insurers.
As a result, to secure yourself the best deal, it is essential to compare quotes.
At Reassured, we can carry out this process on your behalf, saving you time and money, to ensure you get the most cost-effective policy to suit your needs.
And our award-winning brokerage service is completely free to use.
Obtain your whole of life quotes today and secure your guaranteed pay out.