What is whole life insurance?

It's been said that "life is like a box of chocolates, you never know what you're gonna get".

Life is unpredictable with countless twists and turns, but the reality is - all life comes to an end at some point or another. But how can you protect your loved ones in case the worst should happen? That's where Whole Life Insurance can give you and your family peace of mind ahead of the future.

But what is whole life insurance and why do you need it? Let's take a look!

Whole life insurance explained

Whole life insurance is a type of insurance policy that provides cover for the remainder of your life (so long as you keep up with your premium payments). Upon your death, a cash lump sum payment is paid to your loved ones, reducing financial burdens during this difficult time.

Whole life insurance is also known by some insurers as 'whole-of-life insurance' or 'life assurance'.

How does it work?

Just like any type of life cover, the policy pays out a lump sum when the policy holder dies. The key benefit of whole life policies is that you are covered no matter when you die. Whole life insurance cover can be taken out in two forms:

Standard whole life cover

Standard whole of life insurance is the version that Cavendish Online offers. This product has no investment value, you simply pick how much you would like to be assured for and pay your monthly premiums. This is the simplest form of whole life cover. Your premiums can be guaranteed or reviewable, so discuss your preference with an adviser first. 

To talk to a Cavendish Online adviser about whole of life cover, please call us on:

01392 436193

Unit-Linked whole life cover

This is an investment based product where part of your premium goes towards insuring your life, and part is invested. Unfortunately, Cavendish Online is not authorised to discuss this product with you.

The payout from a whole life insurance policy can be used to help your family with finances such as:

Why should I buy whole life insurance?

If you’re looking for a long-term solution, whole life insurance should be your first port of call. In reality, we could die at any moment without any say, but that shouldn’t prevent us from protecting our loved ones.

While whole of life cover can be expensive, the peace of mind it provides for you and your family is invaluable. Nobody wants to consider the thought of leaving our loved ones financially vulnerable. That’s why it’s crucial to ensure you have a form of financial protection in place.

When you die, your family receives a cash lump sum, to do with as they please. The money your family receives can be used to help cover an array of financial commitments such as:

• Everyday expenses
   

• Funeral costs
   

• Rent & household bills
   

• Mortgage repayments
   

• Childcare support
   

• Outstanding loans & debts

How much does whole life insurance cost?

Generally speaking, whole life insurance is considerably more expensive than a standard term life policy. The main difference between the two is that whole life insurance provides permanent cover.

Term life insurance, on the other hand, has a policy term and a set expiry date (i.e 20 years). As such your family only receives a pay-out if you die within your policy term.

The cost of cover is determined by several factors. When you apply for life insurance your insurer will ask you some questions regarding:

• Your age
   

• Your lifestyle
   

• Medical history
   

• Occupation
   

• Smoker status
   

• The type of cover you want
   

• The length of your policy

With most types of life insurance, the older you are, the more you can expect to pay for a policy. This is simply because as you get older, the greater the risk of death and so your insurance provider is taking a bigger risk in insuring you. If you are 50 and over, it may be better to look at an Over 50's life insurance policy.

Most insurers will ask about your health and whether you have any pre-existing conditions. In some cases, they may also ask about your family's medical history. Typically, if you are a smoker you will pay more for life insurance as it's well known that smoking causes damage to your health.

How can I save money on cover?

Whole life insurance doesn’t have to be expensive for everyone though! Here are a few ways you can reduce the cost of your cover:

1. Buy cover at an early stage - as whole life insurance offers fixed premiums, locking in a cheap premium rate can save you money in the long haul.

2. Opt for a joint life policy - if you and your partner share an income, it makes sense to share cover rather than buying individual policies. Joint life policies can be easier to manage than separate policies, and they may also work out cheaper.

3. Don’t smoke - along with age and health, smoking can cause a higher initial premium for life insurance. Some companies may reduce your premiums once you’ve stayed smoke-free for 12 months (usually subject to a cotinine test). So if you’re a smoker, giving up can help you save on cover!

Can I cash in my whole life insurance policy early?

Though it is not a guarantee for all providers, it is possible to cash out your policy if you no longer require coverage. Should you decide to end your policy at any point, a surrender penalty fee will be charged to your policy's value. 

Before taking out a policy, be sure to read the terms and conditions of your insurance agreement. This way, you know whether you can or cannot cash out your policy.

Alternatives to whole life cover

If you’re looking for cheaper cover or perhaps you just want to protect your family in the short term, there are a range of alternatives to whole life insurance. The most notable is term life insurance.

Term life insurance

Unlike whole life policies, term life insurance has an expiry date (i.e. it only lasts for a set period of time). This is known as the policy term. Your insurer will only pay out a lump sum if you die within this time. If you survive, the policy expires and you will not receive any compensation for the premiums paid up until this point.

Term life insurance has 3 levels of cover:

• Level term - regarded as the standard type of term life cover. Both your premium costs and pay-out value are fixed throughout the policy term.
   

• Decreasing term - (also known as mortgage life insurance) is typically used to protect large payments - like a repayment mortgage. Your family may struggle to pay these costs in your absence, therefore this type of cover can ensure they are covered. The premiums on this policy are fixed, but are generally cheaper than level term cover.
   

• Increasing term - designed to protect the pay-out amount from inflation. The pay-out increases over time so that it retains its value when you die. However, your premiums may be increased as a result.

Critical illness insurance

Critical illness cover can provide you and your loved ones with financial support if you are diagnosed with a defined illness of specified severity. In the event of a valid claim, your insurer can pay-out a lump sum to you directly. This money can help in many ways, for instance to cover any income loss from being unable to work, make adjustments needed to your home or get support with day to day living.

It’s important to be aware that not all types of illnesses are covered, and that insurers can differ on their definition of illnesses included in their policy.

As always, we strongly suggest you take time to read through the terms and conditions of your policy to understand what you are covered for - if you have any questions it is worth getting in touch with your chosen insurer who should be happy to help.

Critical illness cover can be purchased either as a stand-alone policy, or on a life or earlier critical illness basis. To speak to someone about how Cavendish Online can help you secure the best critical illness policy for your needs please call us now on:

Income protection insurance

Income protection (sometimes also known as permanent health insurance) is designed to provide you with a monthly, tax free benefit in the event of you becoming incapacitated and unable to work due to illness or injury.

This type of policy is there to support you financially in such an event, until your policy term/pay-out term ends, or when you return to work or die – whichever is earliest.

Is life insurance tax-free?

As a general rule, the pay out from a life insurance policy is considered tax-free. However, there is one key instance in which your policy could be subject to inheritance tax bill. When you die, everything you own is considered part of your estate - including a life insurance policy. The payout of your policy will only be taxed if the value of your estate is above the inheritance tax threshold (£325,000 as of August 2024)