What is whole-of-life insurance?
Whole-of-life insurance is a type of life insurance policy which ensures that, 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.
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, for the simple reason that insurers know they will definitely have to pay out some money at some point.
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 and your lifestyle.
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
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 have a fixed cash sum agreed upon which the insurer will pay out when you die.
With a maximum cover policy, your cover is linked to an 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 premiums, 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 can, in some cases, be substantial.
Who is whole-of-life insurance suitable for?
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 £325,000, 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 will be 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 are determined to leave some form of inheritance to your loved ones, or if you want to help with your funeral costs.
Who is whole-of-life insurance unsuitable for?
Life insurance is really important if you have financial dependents, whether that’s a spouse or children who would be left worse off financially if you were to pass away.
However, as you get older, those loved ones 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.
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.