As much as we all like to think that we are invincible, it is a sad truth that mortality is a fundamental part of what makes us human. But perhaps this is a beautiful truth too, as knowing we will not be around forever makes the time we have with the people we love extra special. When our time is up, we want to know that those special people will be ok, that they will be looked after - this is where life insurance can make a real difference. While it can never make up for the loss, it can provide significant financial relief to your loved ones when you pass away, easing stress and worry in a challenging time. This, in turn, can be a huge weight off your shoulders - allowing you to focus on soaking up every precious moment you have with the people you love.

To touch on the nuts and bolts, life insurance is a type of insurance product that pays out a tax-free lump sum of money if you die. There are different types of life insurance, suited to different people. When somebody has the correct type of life insurance for them, it holds immense value, not least because of the peace of mind it offers. 

If you want to get your life insurance sorted but are not sure which type to purchase, this guide is for you. In the next 5 minutes, you will get a detailed explanation of the options available to you, including the difference between whole-of-life and term life insurance, helping you to make the right choice. New to life insurance? Have a look at our guide for a general overview of what life insurance is, how it works, and why you might want to take out a policy.

What are the different types of life insurance? 

The two main types of life insurance are whole-of-life (also known as life assurance) and term life (sometimes just referred to as life insurance). In a nutshell, term life insurance has an expiry date, whereas whole-of-life cover does what it says on the tin, it lasts for the whole of your life. 

We will go on to look at the differences, and benefits of each, in more detail, but first, here are some of the similarities:

  • Just like your car insurance or home insurance, whole-of-life and term life insurance require monthly or annual payments (also known as premiums) until the policy ends.

  • For most standard policies, your level of health and your age will affect the price of your chosen policy, whether it is whole-of-life or term.

  • Importantly, term and whole-of-life insurance also offer flexibility to those receiving the payout, as they can choose to use the money wherever it is most needed, so you can rest assured that it will go to good use.

What is whole-of-life insurance and do I need it? 

Whole-of-life insurance is a great choice for those who want a guaranteed payout from their policy when they die and are able to continue paying insurance premiums for the rest of their lives (which we hope is a very long time!). 

When you pass away, if the value of all of your possessions, known as your estate, is above £325,000, then your loved ones may need to pay inheritance tax, which is 40% on anything above that value*. Those that will be affected by inheritance tax sometimes take out whole-of-life insurance knowing that it will pay that tax bill, essentially leaving the full value of the inheritance intact for their children. 

These people will also likely opt to put their life insurance policy in trust. This is a legal arrangement, where you transfer the ownership of your insurance policy to a trusted person, a trustee, who will then make sure that the right person receives it when you pass away. One of the biggest benefits of doing this is that the lump sum of money paid out when you pass away does not get added to the value of your estate, so it won’t be subject to inheritance tax. 

We have only scraped the surface on a pretty complex topic here, but if you would like to understand more about inheritance tax, or writing a policy in trust, you can call our insurance specialists on 01392 436 193.

You might also want to consider taking out a whole-of-life policy to cover the cost of your funeral. Funeral prices are rising and they might already be more expensive than you realise, as the average price of a funeral is a staggering £3,989 [1]! With a whole-of-life policy, you have peace of mind of knowing that your family will not have to cope with this extra financial burden at an already stressful time.

What is term life insurance and do I need it? 

If you’re only looking to be covered for a set number of years, perhaps just while you have family members that are financially dependent on you, or while you are still paying off a mortgage, then term life insurance could be the right policy for you. Essentially, you will only receive a payout if you pass away within the number of years specified in the policy. 

Because there is no guarantee of a payout, as you may outlive your policy (and we hope that you do!), term life insurance is typically cheaper than whole-of-life insurance, with policies available for as little as £10 a month. 

If you decide that a term life insurance policy is a good fit for you, then you have one more key decision to make - would you like level, decreasing or increasing cover? 

  • Level cover - the size of the policy payout will not change - no matter when you pass away, as long as it is within the term of the policy.

  • Decreasing cover - the size of the policy payout reduces over time. So the later in the term that you pass away, the smaller the payout. Why would someone want this? Well, lots of people take out a term life policy to cover their mortgage and protect their loved ones should they die unexpectedly. The size of the insurance policy is usually set to match the size of the outstanding mortgage debt, which for most people reduces over time.

  • Increasing cover - the size of the policy payout increases over time, usually in line with inflation. 

As you can see, there are lots of things to consider, so when choosing which type of life insurance to purchase, it’s important to get help from people who really know what they’re talking about. You can call our insurance specialists on 01392 241 850, and they will guide you through the process and help you make the right decision for you and your family.

I am over 50, which life insurance should I buy?

As we grow older, we are more likely to experience health problems, which can make it harder to buy life insurance cover. If you are over 50 (but younger than 80) and have a health condition, an over 50s policy might be the right fit for you. This is because these policies offer guaranteed acceptance - in other words, you can purchase a policy no matter what health conditions you might have. Often this type of life insurance is purchased to cover funeral costs, but the payout can ultimately be used however your loved ones decide, depending on their financial needs at the time.

To help you choose the right policy for you and your loved ones, you can use our new over 50s life insurance comparison tool. Here you can get quotes from market leading insurers in less than a minute, allowing you to confidently assess your options.

That said, if you are over 50, it doesn’t automatically mean that an over 50s policy is the best fit for you. Because these policies are guaranteed acceptance, covering people regardless of their health conditions, over 50s life insurance often is on the more expensive side. So if you don’t have any medical conditions and are generally healthy, you are likely to still be eligible for standard whole-of-life or term life insurance, which could work out cheaper or just be a better policy for you.

How can I buy life insurance?

At Cavendish Online, we offer many options to help you find the best insurance for you and your loved ones. You can apply for an online policy yourself, in just a few minutes. Alternatively, you can choose to speak with one of our specialists over the phone, who can guide you through the process and help you choose the best policy. 

For help with your new life insurance policy, call one of our consultants on 01392 241 850.

[1] https://www.moneyadviceservice.org.uk/en/articles/how-much-does-a-funeral-cost

*Based on the 2020/21 tax year, tax rules can change: https://www.gov.uk/inheritance-tax

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