Whole of life insurance

How does a whole of life policy work?

With whole of life insurance, you pay a monthly or annual premium. You should be covered by the policy so long as you keep paying the premiums.

You need decide whether to pay reviewable or guaranteed premiums.

• Reviewable premiums are often low to start with, but insurance providers can review your payments – usually pushing them up.
• Guaranteed premiums may be more expensive to start with but remain the same throughout the policy term.

You might want to consider writing your life insurance policy in trust, to make sure any pay-out when you die goes to your beneficiaries (the person or people you name). Otherwise, the pay-out is likely to become part of your estate and could be used to pay any inheritance tax or outstanding debts.

There are some whole of life policies where you only pay for a fixed number of years or until you reach a set age – for example, 90. You’ll still be covered until you die, but you won’t have to pay anything after the fixed period ends.

How much does whole of life insurance cost?

Whole of life insurance is usually more expensive than term cover because insurance providers know they’ll definitely have to pay out at some point.

As with other types of life insurance, different factors can affect the cost of your premium. Depending on the type of policy you take out, these could include your:

• Age – the younger you are when starting your policy, the cheaper it’s likely to be.
• Cover level – the more you want your beneficiaries to receive, the more you’ll have to pay.
• Medical history – whether you have any existing health conditions
• Lifestyle – for example, if you smoke.
• Occupation – particularly if you’re still working.

As you’ll need to keep paying your premium until you die (or reach an advanced age), consider whether you can afford to keep paying after you retire.

Is whole of life insurance worth it?

A whole of life policy could be worthwhile for you if:

• You want to leave your family a lump sum when you die.
• You want a pay-out that could help cover an inheritance tax bill.
• You want to cover funeral costs, leave a legacy or help replace a partner’s lost pension.
• You’re willing to pay potentially hefty premiums, which – depending on the policy – could increase in future.

However, if you only want cover as financial security for a certain length of time, you may find a term life insurance policy more suitable.

If you’re considering a whole of life policy, it’s a good idea to speak to a financial advisor to check it’s the right option for you. They’ll also help you understand the risk of any investments the policy uses and how the pay-out could vary.

Our partners Howden Life & Health can help. You can call them on 0808 141 1336.

Some whole of life policies charge fees if you end your cover early, so it’s a good idea to seek advice on this.

Is whole of life insurance guaranteed to pay out?

As long as your cause of death is covered under the policy’s terms and conditions, you’ve told the truth on your applications and you don’t miss any payments, the pay-out should be guaranteed. Depending on your policy, your premium payments may stop at a certain age, for example, 80, 85 or 90. Even if your payments stop after this age, your policy should still pay out when you die.

It’s important to check which causes of death are covered before taking out a policy. Insurance providers have their own terms and conditions, along with different exclusions and limitations.

In nearly all cases, you’ll find that death resulting from alcohol or drug abuse won’t be covered.

Should I get term or whole of life insurance?

The big attraction of whole of life insurance is the guaranteed pay-out. You know your loved ones should receive a cash payment when you die, whenever that happens. The downside is that this usually means paying higher premiums.

If you only need financial protection for a limited time, then consider term life insurance. It’s designed so that any pay-out can cover financial commitments, such as a mortgage, if you die while the policy is running. As this type of insurance covers a fixed period, your monthly premiums are usually lower.

You may want to consider decreasing term life insurance, where the pay-out goes down over the policy term. This type of cover is often taken out to cover the balance on a repayment mortgage.

Learn more about the different types of life insurance and how they work.

Can I get whole of life insurance if I’m in poor health?