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Whole of life insurance

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Last updated: 24 May 2021

Whole of life insurance policies can ensure your family get a pay-out just when they need it the most. However, they can be expensive and it's worth bearing in mind that they are not for everyone. 

This guide takes you through the basics of whole of life insurance, gives you an idea of what can affect the price you pay, and a few ideas on keeping costs down.

What is whole of life insurance?

A whole of life insurance policy is a specific type of life insurance, it's often called whole of life assurance. 

The word assurance means that this policy will always guarantee to pay out in a tax-free lump sum to your family, and a whole of life cover means that this is paid when you die, rather than within a certain time frame.

So how do they work? 

Before you can be covered, you have to choose the pay-out that you want. 

You will then pay premiums on a monthly or annual basis (or very rarely in one lump sum), and you will be covered for as long as you continue to pay your premiums. 

It can be far more expensive than term life insurance, due to the comprehensive and long-lasting cover it provides. 

Whilst it can be very useful for some, it will not suit the majority of people, particularly those on a tighter budget. 

However, exactly what you pay will depend on your provider, your policy, and your selected pay-out.

It's worth noting that you can set up your cover in a trust - this means that when a pay-out is made, it's managed by people known as trustees. 

They will make sure the money is distributed to the beneficiaries that you choose.

This will also help you bypass any inheritance tax liability, ensuring more money goes to your loved ones when you pass away. 

If you do not set up your insurance policy in trust and chosen beneficiaries, the money paid out when you pass away will be added to your overall estate; lump sum payments like this are liable for taxation by the UK government.

What whole of life insurance do I need?

As with all insurance policies, finding the right one is a matter of balancing cost and cover - you will want to look for the policy that covers everything you want or need, at the best possible price. 

The higher your selected pay-out, the more your premiums will cost. 

This doesn't mean you should automatically choose a smaller pay-out. You should consider why you are getting the policy. 

Are you wanting a policy that will pay off your mortgage, or do you want further cover to provide more for your family in the event of your death?

There are also two main kinds of policy to choose between:

  • Balanced Cover: This is also known as standard cover. With this cover, you will pay the same for your premiums for the entire length of the policy. This means it will be more expensive initially, but can save you surprises in the long run.
  • Maximum Cover: The premiums you pay with these policies are subject to review by your insurance company- this means they are almost guaranteed to increase as you get older or encounter any health issues, but will be a lot cheaper initially than balanced cover. 

How much does whole of life insurance cost?

The price of your premium will depend on the size of the pay-out that you choose. 
Other factors that will increase the price of your premiums include your medical history, current health issues and your age. 

The more life-threatening issues in you or your family's medical history, the more expensive cover will be. 

If you already have a pre-existing medical condition that is particularly serious or even life-threatening, you may struggle to get cover at all. 

As for your age, as you get older, insurance companies see insuring you as higher risk and will charge more for their whole of life policies. 

These factors won't just affect the initial cost, they will also affect increases in cost if you opt of a maximum cover policy.

When it comes to keeping costs down, you can try adopting a healthier lifestyle. 

When calculating premiums, insurers will take into account factors such as your weight, whether you smoke, how much alcohol you drink and how much you exercise.

It's also worth noting that a joint life insurance policy for you and another will be cheaper than two individual policies, but you should remember that these will only pay out once when the first person dies.

As with all insurance policies, you should shop around and compare providers to keep costs down by finding the deal that's best for you. 

Comparing life insurance policies is simple with usave; all you need to do is provide a few details and we will compare life insurance quotes available to you based on your circumstances.

Other things to bear in mind with whole of life insurance

A few things to consider when taking out a whole of life policy: 

1. Consider how much you are paying and for how long. 

If your policy is too expensive and you buy too early, you may end up paying more into it than you get out at the end.

2. Check the terms and conditions 

As with all insurance policies, it's crucial that you check the terms and conditions, so that you know exactly what you're paying for. 

Whilst whole of life insurance nearly always guarantees a pay-out, different companies will only cover certain causes of death. 

Policy providers are particularly reluctant to provide cover for any deaths related to drug abuse or alcohol consumption. 

Other than this you should familiarise yourself with all the exclusions and limitations of your policy. 

Your provider will be able to provide the necessary advice if you have any other questions.

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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.