What Is A Whole Of Life Insurance?

antoine fruchard Antoine Fruchard  updated on December 3, 2020

You want to know what is a whole life insurance policy? and if you should choose term vs whole life insurance or the opposite? You’re in the right place!

In our article, we will explain everything you need to know about whole of life insurance, let’s dive in!

What is whole of life insurance?

Whole life insurance definition is quite simple : it is a form of insurance that will pay out in the event of your death (and sometimes against diagnosis with a life-threatening disease) and that remains in force throughout your entire life (as long as you continue to pay the premiums).

How does whole of life insurance work?

When you take out a whole life policy you pay monthly premiums for a stated amount of cover, for instance a sum insured of £250,000. You also nominate a beneficiary, which may be a trust, or a member of your family.

The insurer invests the premiums paid by its “lives assured”  in long term income generating investments, in line with its actuarial calculations. It makes assumptions about mortality (how long its customers will live) and about the return it will get on its investments, so that there will always be enough money in the kitty to pay out. 

When you die, the insurer will pay out the agreed sum to your beneficiary.  

If you prefer to be covered for a limited time, check out our guide about term life insurance.

What types whole life insurance policy are there?

There are three main types of whole of life insurance (life assurance). All of them exist to provide a payout for your family when you die. However, they can operate quite differently, depending on how they are structured :

whole life insurance schema

Non-profit whole of life policy

You pay a fixed premium throughout your life, and the insurer pays out a fixed cash lump sum to your beneficiaries when you die.

With-profits whole of life cover

You pay a fixed premium, and the insurer invests this on your behalf. The payout is based on how the investments perform – it’s not fixed.

Unit-linked whole life insurance policy

You decide the size of payout you want and the insurer invests your premiums in order to achieve it. Because investment performance can vary, the insurer may need to increase your premiums in order to achieve the desired performance.

How much does whole of life insurance cost?

The cost of a whole-of-life policy will vary depending on your age and health when you take out the policy, together with the amount of payout that you want to insure. For instance if you’re fit, healthy, and 30 (and a non smoker), you’ll pay half what a 45 year old would for the same level of cover.

Obviously, at 30 the insurer’s hoping you’re fit and healthy and have a lot of living left to do. At 45, you’re probably still good to go – but middle life is when health problems often do show up. And for the same sum insured, you now have 15 years fewer in which to make your contributions. Higher risk plus a shorter time to contribute equals higher premiums.

The table below shows how age affects monthly premiums. We ran the same request for the same individual – we only changed the birthday. It makes a huge difference! Here are example of whole life insurance rates :

Age at start of policyMonthly premium
20-30£53
30-40£93
40-50£124
Over 50£181
For £100,000 of cover, non-smoker

Term vs whole life insurance: what is the difference?

Have a look to this diagram, we can see that the main difference is that term life insurance is limited whereas whole life insurance is not.

whole life vs term life

Choosing between term and whole life insurance depends on your situation. Whole of life guarantees a pay out at the end, when the policy holder die. With term life insurance, it doesn’t guarantees a pay out, if the policy holder doesn’t die during the length of the policy, family won’t receive anything.

How much whole life insurance cover do I need?

Well it depends. If you have children maybe you will want to get whole of life insurance that is more protective. Your premiums can change depending on your age and situations, don’t be surprised.

Is whole of life insurance worth it?

A whole of life insurance can protect your family by paying out a lump sum when you die. If you’re wealthy or own a valuable property you might want to protect them against a big inheritance tax bill, or you may want to leave children and grandchildren a nest egg.

A life assurance policy can be used as a form of savings for your family. Many parents with severely disabled children, for instance, use whole of life insurance to ensure their children will be properly looked after when their parents are no longer around.

On the other hand sometimes, you may only need life insurance for a certain length of time – for instance till your mortgage is paid, or till your children have grown up.

Price
Average university education (tuition + maintenance)£40,950
Average private school fees, per year (day school)£14,102
Repaying the average mortgage £135,000
Full time childcare, per year£10,600
Full time live-in care for disabled adult, per year£55,600
Cost of life

However, if you’d like to put money into a whole of life insurance policy, it’s best to do it sooner rather than later. The premiums are much cheaper if you’re still in your 20s or 30s when you start paying in.

When should you take out whole life insurance?

Here are a few situations in which whole of life insurance will be more than suitable:

  • Inheritance tax bill: Life insurance payout can help to pay the huge amount of inheritance tax instead of taking a loan.
  • To reassure your family : For example, if your family is really counting on you, maybe whole of life is suitable because this insurance policy is certain, your family will receive the pay out. Term life vs whole life insurance is all about it, with whole life insurance, your loved ones will not need to doubt about the future.

What are the best whole of life insurance quote?

You’ll need to get your own whole life insurance quotes to find out exactly how much it will cost for you, as you may want a larger sum covered, and your health and age will have a big influence on the price of your premiums. Life assurance quotes can vary widely between insurers so it’s important to make a proper comparison.

Below, we’ve shown some of the best quotes from reputable, trusted insurers for one particular individual – a non-smoking 35 year old who needs £175,000 of cover over a 20 year term.

InsurerWhole life insurance rates
vitality logo£163.40
royal london logo 1£164.46
aegon logo£170.48
legalgeneral logo 1£176.48
aig logo 1£236.88
Whole life insurance premiums UK

What are the pros and cons of whole of life insurance?

One big plus of whole of life insurance is that you’re covered for life. But there are also disadvantages – cost being a big one. 

  • The policy will cover you for all time, not just up until a certain date. 
  • Some policies also allow you to link the payout with investment, so the payout could grow in value over the years.
  • Some policies will let you stop paying once you reach a certain age.
  • Whole of life premiums are much more expensive than term life insurance. If you only need life insurance to cover your mortgage, or simply want to ensure your family is covered if you die while your children are young, then term life insurance is much cheaper than whole of life.
  • If you have to give up paying your premiums, there can be high penalties. With investment-linked policies you’ll get back the value of the fund, but that could be a lot less than you’ve paid in premiums.
  • Some life assurance policies have high charges which can reduce the payout to your beneficiaries.

Can I get a joint whole of life insurance?

Yes, you can get a joint whole of life insurance to cover you and your partner. It will cover both of you, but it only pays out once – usually, on the first death, so that the other partner is provided for. Second death assurance can also be arranged; this is useful in managing inheritance tax issues for your children (though you’ll need to ensure the policy is written into trust).

FAQ

How does Whole life insurance payout?

Whole of life insurance will pay out when the policy holder die.

What are the disadvantages of whole life insurance?

Whole of life insurance have also disadvantages, the first one being that it is quite expensive to get a whole of life insurance policy.

Is whole life insurance tax free?

Whole life insurance is tax free but you have to write whole of life insurance plan into a trust to avoid inheritance tax.