If you’re looking to buy life insurance cover on a permanent basis there's one policy in particular that may be perfect for you.  Whole life insurance can provide you and your loved ones with permanent cover, find out how it works in the following article.

What is whole life insurance?

Often referred to as life assurance, whole life insurance can cover you for your entire life once you take out a policy.  When you die, your insurer pays out a lump sum to your family to support them financially during a difficult time.

How does whole life insurance work?

With whole life insurance, your policy pays out no matter when you die - essentially meaning your family is guaranteed a pay-out (so long as you keep up with your policy premiums!). However, it’s worth bearing in mind that because of this, whole life policies are generally more expensive than other types of ‘term based’ life insurance policies.

There are two main types of whole life insurance cover:

  • Balanced cover (also known as non-profit whole life cover) - Both the pay-out value and premium cost is fixed throughout the policy. In this case, it’s best to take out cover at the earliest stage so you can lock in cheaper premium rates. Note that this is the type of Whole of Life policy that the Cavendish Online team can arrange for you over the phone. 
     

  • Maximum cover (also known as with-profits whole life cover) - This type of cover works differently from most policies as your cover is linked to an investment fund. Every month your insurer invests the money from your premiums to make a return that will cover the eventual payout.

    In addition, you can receive bonuses if the investment performs well. However, if it fails, your insurer may raise the cost of your monthly premiums to cover the loss.

Once your application has been accepted and your cover goes live, you begin paying monthly premium payments to your insurer. You must keep on top of your monthly payments, otherwise your policy may lapse and you’d  be left without cover.

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Should I get a term based life insurance policy, or whole life insurance?

Along with whole life insurance, term life insurance is one of the main types of life insurance cover. Both of these policies differ in terms of cost and length of cover, yet both can provide financial protection for your loved ones.

Term life insurance provides coverage for a set period of time, as opposed to permanently. Your family can only make a claim if you die within the policy term - if you survive the policy term then the policy simply ceases. 

There are 3 levels of term life cover:
 

  • Level term - Like balanced whole life cover, both the pay-out amount and premium rate are fixed throughout the policy.
     

  • Decreasing term - Typically take out to cover the cost of a mortgage or other large payments. The payout amount decreases over time, usually by a set percentage every year. 
     

  • Increasing term - The payout value increases overtime to try and offset the effects of inflation. Note that because of this, your insurer may also increase your premiums to reflect the increased  sum assured. 

Term life insurance is generally cheaper than whole life, however, it doesn’t provide permanent cover or investment opportunities. Ultimately the type of cover you choose reflects the finances of you and your family.

For example, if you were looking to cover a repayment mortgage, you may choose a decreasing term life insurance. However, if you’re looking to ensure your family is protected throughout the future, with no end date on your cover, then whole life insurance may be the better option.

If you are unsure about what might be the best life insurance options for you and your loved ones then you should consider speaking to an adviser

Products & Services from the leading financial brands

  • Zurich
  • Legal And General
  • Aviva
  • AIG
  • Beagle Street
  • Canada Life
  • Cavendish Life Cover
  • LVE
  • Royal London
  • Vitality Life
  • Virgin Money
  • Budget Insurance

What can whole life insurance cover?

Whole life insurance can be used to help your family cover an array of finances such as:
 

  • Everyday living costs
     

How much does whole life insurance cost?

When you apply for life insurance, your insurance provider will likely ask you some health and lifestyle questions. The nature of these questions helps them to generate an estimate of how much your monthly insurance premiums will be.

Your insurer will likely ask about:
 

With these questions it’s important to answer as truthfully and accurately as possible. If not, it could invalidate your cover and impact on your loved ones’ ability to claim on the policy if you pass away. 

Is whole life insurance tax-free?

Though whole life insurance is considered tax-free, it may be subject to inheritance tax. When you die the pay-out of your life insurance policy is deemed as part of your estate (i.e. any assets you own prior to your death).

Some people choose to write their policy into trust in order to try and keep the proceeds from their life insurance policy outside of their estate.

For more information on this subject, why not check out our 'Is Life Insurance Taxable?’ news article. 

Speak to the experts...

Give our advisers a call today.

Our team of friendly and professional advisers are on hand to help with any questions you may have regarding Life Insurance.

The advisers can also make recommendations tailored to your current situation and will research the market on your behalf, ensuring you secure the cover you need and supporting you every step of the way. 


01392 43 61 93(Monday to Friday, 9am - 5.30pm)

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