Whole-of-life insurance explained

What is whole-of-life insurance?

Whole-of-life insurance is a type of life insurance policy that ensures no matter when you die, your loved ones will receive a lump sum payout from your insurer.

This is in contrast to term life insurance, which only guarantees that there will be a payout should you die within the specified term of the policy.

Read up on what does life insurance cover?

How much does whole-of-life insurance cost?

Whole-of-life insurance is generally a more expensive form of life cover than term life insurance or family income benefit insurance.

Insurers know everyone will die, so as long as you continue to pay the premium, they will have to pay out eventually.

To help you understand the potential costs involved in whole-of-life insurance, we've compiled illustrative quotes based on different age groups and coverage amounts. Each quote is tailored to a non-smoker working in an administrative role. The higher the coverage amount and the older you are, the more you can expect to pay monthly.

The quotes provided are estimates intended to give you a rough idea of the potential costs for whole-of-life insurance. Actual premiums may vary based on various factors, including your health, lifestyle, and the specific terms of the insurance policy. 

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How long do you pay for whole-of-life insurance?

You must ensure that you can afford the premiums, not only during your working life but also once you retire. If you fail to keep up with your premiums, the cover will be cancelled.

That said, many whole-of-life policies will only require you to pay premiums up to a certain age, typically to age 90. This will vary between insurers and policies, however, so read the terms and conditions of any policy closely before taking it out.

The actual cost of your whole-of-life insurance policy will be come down to a host of factors about you, such as how much cover you want, your age, your health conditions and your lifestyle. When you apply for your policy, you will be asked to answer a list of lifestyle and medical questions that will directly impact your premiums. 

• Find out more: Income protection insurance 

What are the different types of whole-of-life insurance?

Whole-of-life policies broadly come in two main types: balanced cover and maximum cover.

Balanced cover

With balanced or standard cover, your premiums will stay the same throughout your policy. Even when you get older, and your health may deteriorate, you will still pay the same amount for your cover. As a result, your premiums are guaranteed.

You will also agree a fixed cash sum that the insurer will pay out when you die.

• Find out more: can I get life insurance with diabetes?

Maximum cover

With a maximum cover policy, your cover is linked to a financial services investment fund. The insurer invests the money you pay each month, in the hope that the returns generated from that investment will be sufficient to cover the cost of the eventual payout.

Your premiums will then be reviewed on a periodic basis. If the investments are not performing to the level that the insurer wanted, your cover may be changed. The insurer may increase your monthly payments, or reduce the size of the payout your loved ones will receive after you die.

While these policies are likely to be cheaper initially, premium increases are likely – and in some cases, they can be substantial.

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Are whole of life policies worth it?

One of the big selling points for whole-of-life insurance is that it can help your family deal with an inheritance tax bill. If your estate is worth more than tax-free thresholds, inheritance tax will be charged at 40% on the value of the estate above that threshold.

However, the tax will need to be paid before your loved ones are given access to the estate. You can find out more in our guide to inheritance tax.

This can put your family in a difficult position – they need to pay a tax bill running into the thousands of pounds, but they cannot use the money in your estate to do so.

As a result, many are forced to take out a loan just to cover this bill. This can be an added source of stress at an already upsetting time.

A whole-of-life insurance policy can help avoid this issue. The payout provides the funds needed to clear the inheritance tax bill without needing to take out a loan or dig into their own savings.

This is reliant on the policy being written in trust, though. Find out more in our guide to how to write life insurance in trust.

Whole-of-life cover may also appeal if you want to leave some form of inheritance to your loved ones, or if you want to help with your funeral costs.

• Find out more: Best life insurance UK

Who is whole-of-life insurance unsuitable for?

As you get older, any financial dependents may no longer be so reliant on the money you bring in. Once you're in your seventies, for example, you may have cleared your mortgage, while your children have long since left the home to start families of their own.

As a result, you might prefer to stick to a term life insurance policy to cover you throughout the period on which your family is most likely to need financial help should you die.

• Find out more: what is mortgage life protection insurance?

Can I cash in my whole-of-life insurance policy early?

Some whole-of-life insurance policies will allow you to cash them in, and get some level of payout before you actually die.

If you are tempted to do this, be sure to check the terms of your policy as the surrender value of your policy may work out as significantly less than what you have paid in premiums over the years.

There may also be charges associated with doing so.

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What happens to a whole-of-life policy if you stop paying? 

If you simply cease paying, then the cover will stop and you will not get back any of the premiums paid. This is the same with term life insurance.

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Which is better, whole-of-life or term insurance?

Term insurance offers a number of different policies and can be used for different purposes. 

You might have one policy to pay off a mortgage if you die, another to provide a family income and a third to leave a lump sum. Term insurance is often cheaper and you can stop paying it once you no longer need life insurance.

Whole-of-life insurance is more expensive but will last longer.

Which you need or would best suit you depends on your personal circumstances and the prices you are quoted.

• Find out more: what are the benefits of multiple life insurance policies?