In this article, I’m going to be looking at Whole Of Life Insurance. What it is, what the benefits are, whether or not you should have it and what it will cost you.
Basically, ‘Whole of Life’ is a type of Life Insurance that pays out a lump sum to your loved ones when you die, no matter when that might be. This is different to ‘Term Life Insurance’ which only pays out if you die within the policy’s specified term e.g., if you had a 20 year policy, you’d have to die within the next 20 years for it to pay out.
Is Whole Of Life Insurance Expensive Then?
In a word, yes, because the insurance company knows that at some point they are definitely going to have to pay up. Your monthly premiums will depend on the same factors that always apply when you take out insurance; your age, health, lifestyle etc, so of course there are some things you can do to keep your payments as low as possible, but you will have to ensure you can afford them for, well, the whole of your life – even when you are retired.
Some Whole of Life Insurance policies will actually only require you to pay premiums up until you are a certain age (90, for example), and as with other insurance policies, if you don’t keep up with your premiums, your cover will be cancelled.
So, It’s Just One Type Of Policy Then?
No. There are actually two types of Whole of Life Insurance Policy….
- Standard Cover – With this type of policy your monthly payments will stay the same throughout your whole policy. Even when you get older and your health may have deteriorated, your premiums are guaranteed. The cash amount that will be paid out when you die is also guaranteed and will be the amount that was originally agreed when you first took your policy out.
- Maximum Cover – With a maximum cover policy the insurance company invests your monthly payment in the hope that the returns from that investment will be enough to cover the cost of the payout when you die. Your premiums are not fixed like they are with standard cover. Instead, they are reviewed every year, and depending on how the investments are performing your monthly premiums could be increased. The size of the payout that your loved ones will receive when you die could be reduced. This type of policy often starts off cheaper than standard cover – but premium increases are likely and can be large!
Any Other Benefits To Whole Of Life Insurance?
Glad you asked. A huge benefit of having a Whole of Life Insurance policy is that it can help your family with inheritance tax. An inheritance tax bill needs to be paid BEFORE your loved ones can access your estate. This often results in relatives needing to take out a loan or use their own savings to cover the bill.
If it is written in Trust, a Whole of Life Insurance policy pay out can provide enough to pay the inheritance tax bill. It can also be used to cover funeral costs and to leave some inheritance to your family.
And Is It Suitable For Everyone?
You already know that Life Insurance is important if you have dependents. However as you get older those children won’t be so dependent on your money; there will come a time when they may have left home or have families of their own. You might prefer to have a Term Insurance policy. They are cheaper to cover. A Term Insurance policy is there to help your family when they may need financial help the most.
Anything Else I Should Know?
Some Whole of Life Insurance policies allow you to cash in and receive some of the money before you die. There might be charges associated with doing this so make sure you have read the policy carefully. Be aware that the value of your policy might work out at a lot less than what you have paid out in premiums over the years.
Want to see some example costs?
I’ve created a table to give you so examples of the cost difference. It’s based on needing £200,000 of life insurance, being a non-smoker, no medical conditions and no adverse family history.
I’ve created a table to give you so examples of the cost difference. It’s based on needing £200,000 of life insurance, being a non-smoker, no medical conditions and no adverse family history.
| *£200,000 | Whole of life |
| 30 years old | £123.99 per month |
| 40 years old | £182.25 per month |
| 50 years old | £251.191 per month |
| 60 years old | £393.91 |
Of course, if you need less than £200,000 you can expect the cost to come down also.
