6 Reasons why you should buy whole life insurance

It’s never a pleasant thought, but sadly all of us will die. While we can’t prevent death, we can plan for it by taking out life insurance cover. Whole life insurance in particular assures us that our loved ones will be protected for any difficult times ahead.

Most of us will be faced with a decision as to whether or not to buy life insurance. While you may feel like life insurance is expensive and unnecessary, it’s an option you cannot afford to dismiss right away.  In this article, we’ll look at how a whole of life policy works and the benefits of owning cover.

What is whole life insurance?

Whole life insurance (sometimes known as ‘life assurance’) is a type of life insurance policy that provides you with cover for the remainder of your life. It goes under other names by insurers, most notably  ‘whole of life insurance’ or ‘life assurance’.

When you die, your loved ones receive a lump sum payment - known as the policy pay-out. Unlike term life insurance, this type of cover pays out no matter when you die. Therefore, your family is guaranteed financial support when you are no longer there to provide for them.

Like all types of life insurance, when you take out a policy you begin making monthly premium payments to your provider. If you fail to pay your premiums, your cover will end.

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What does whole life insurance cover?

Whole life insurance will cover any type of death outlined in the policy agreement, this could include natural causes, accidents, or illnesses. So long as you are truthful about the information you provide when taking out the policy (i.e health and medical conditions) the insurer should approve a claim made on your policy.

What does whole life insurance NOT cover?

Not all deaths are covered by life insurance, such as death as a result of illegal activities, such as alcohol intoxication or drug overdose, criminal activity. If you have a pre-existing medical condition that you did not disclose when taking out the policy, this could also result in your claim being denied.

Some policies may have exclusions for certain high-risk activities, such as extreme sports or dangerous hobbies.

If you have a term life insurance the policy will only cover you till the end of the policy term. If you die after this your family won't be able to make a claim on the policy. This also applies if you stop paying your monthly premiums.

Make sure to read the policy document to understand what is/isn't covered under the policy.

Why should I buy whole life insurance?

One thing that is certain in life - death is unpredictable. Many of us are faced with the decision as to whether or not we should buy life insurance. One of the sure ways to determine whether you may need cover is by assessing your family’s financial situation.

Ask yourself these questions - how would my death impact my family’s finances? Are there any financial burdens that they would otherwise struggle to pay off,  such as a mortgage?

Here are just some of the reasons why you may want to buy a whole life policy:

1. Protect your family’s finances

2. Provides permanent cover

One of the significant differences between whole life insurance and term life insurance is the policy length. While term life insurance is typically cheaper, it only provides cover for a set period of time (i.e. 20 years). You can learn all about the difference between the pair in the article - Whole and term life insurance: which is better?

Whole life insurance, on the other hand, ensures a pay-out no matter if you die in 3 years or 30. Though the cost is greater, the peace of mind it offers to you and your loved ones is priceless.

3. Support your children’s future

One of the many joys of parenthood is giving your children a helping hand when they need it most. Even if you were to pass away before your children grow up, you can still support them. 

For young adults, life can be very expensive, whether that be going to university, travelling, buying their first car or house or even starting a family of their own. That’s where the pay-out from a whole life policy can provide them with a brighter future.

5. Fixed Premiums

With a balanced cover whole life policy, your premiums remain the same throughout your cover. Even as you get older and more likely to develop health problems, your policy premiums remain the same price as when you originally took out cover. The payout value also stays the same during cover.

If you should prefer, you could opt for an increasing whole life policy. This plan would help ensure that your sum assured increased with inflation. Please be aware that the premiums would also increase in line with the new cover amount each year.

6. Tax-free payout

When you die the lump sum from the policy is added to your estate - which is then passed on to your selected beneficiaries. Your estate is made of everything you own - i.e properties, cars, jewellery and investments like life insurance. Though whole life insurance is technically tax-free - it may be taxable under inheritance tax.

If the value of your estate is greater than the inheritance tax threshold (£325,000), it will be taxed 40% [1]. The best way to protect your whole life policy from inheritance tax is by writing your policy in a trust. This is a legal arrangement, set up by the policyholder to hold assets for third parties.

If you are unsure about whether to use a trust or not, we recommend that you seek legal advice or speak to a solicitor.

Unfortunately, as we get older, we run a greater risk of developing medical conditions and even death. Therefore the cost of cover rises significantly.

How to get cheap whole life insurance

Though whole life insurance is expensive, this isn’t always the case. Here are just a few ways to save money on whole life insurance such as:

• Get cover when you are young - The cost of life insurance rises as you get older, therefore getting a policy early can save you money in the long run.
   

• Don’t smoke - Life insurance premiums cost more for smokers due to the health risks associated with smoking. Some providers can reduce your premiums if you manage to stay smoke-free for 12 months or so.
   

• Opt for term life insurance - if you're looking for a cheaper policy then you should consider term life cover. Though it has an expiry date, term life insurance is typically cheaper than a whole life insurance policy.
   

• Take care of your health - Improving your health can help reduce your premiums. Maintaining a healthy lifestyle, such as regular exercise and a balanced diet, can lower the risk of health problems and therefore lower your insurance premiums.

Get a quote today!

At Cavendish Online, we are dedicated to helping you find the best life insurance cover, for the best prices in the UK. With several options available you can compare term life insurance quotes in minutes by filling out our easy-to-use online form.

[1] Source: https://www.gov.uk/inheritance-tax