Let us explain whole-of-life insurance


As with many insurance products, there are lots of terms that risk sounding like jargon. So at Cavendish Online, we’ve put together a brief guide to explain what whole-of-life insurance is, to help you make a more informed decision on whether it’s right for you.

In essence, the two types of life insurance policies you’re most likely to come across are ‘term insurance’ (the more basic form of life insurance) and ‘whole-of-life’.

What exactly is whole-of-life insurance?


With a whole-of-life insurance policy, the clue is in the name. Unfortunately, we all die one day, so as this policy is ongoing, it will pay out a lump sum whenever that day comes.

Typically, these policies are more expensive than term insurance policies since as long as you keep paying your premiums, the insurer will always have to pay out, whereas you may outlive a term insurance policy.


TIP:Whole-of-life insurance is also known as life assurance by many insurers.

What are the costs of whole-of-life insurance?
 

As previously mentioned, whole-of-life insurance is generally a more expensive form of life cover than term life insurance - so you must make sure that you can afford the premiums, not only during your working life but also when you retire. If you can’t keep up with your premium payments, the cover will be cancelled with no benefit payable.

The good news is that some whole-of-life policies only require you to pay premiums up to a certain age, typically to age 90; however this does vary between different insurers, individual policies and levels of cover.

The actual cost of your whole-of-life insurance policy comes down to a number of considerations about yourself, including how much cover you’re looking for, your age, your lifestyle and your health in general.

How to keep the costs of life insurance down:

  1. Live a healthy lifestyle – we all know what’s bad for us, so avoid drinking, smoking and try to keep fit and well.
     

  2. Take out cover when you’re young - typically the younger you are when you take out the policy, the less expensive your premiums will be.
     

  3. Be sure to speak to a discount broker who will likely be able to give you the best whole of life policies at the lowest cost.

Are there different types of whole-of-life insurance?
 

Yes. Whole-of-life policies are offered generally in two main types - ‘balanced cover’ (often known as ‘standard cover’) and ‘maximum cover’.

With balanced cover, your premiums will stay the same throughout the policy. Even as you get older and may experience health issues, you’ll still continue to pay the same amount for your cover. As a result, your premiums won’t change.

You will also have a fixed cash sum agreed upon which the insurer will pay out when you die.

With a maximum cover policy, your cover is linked to an investment fund. The insurer invests the money you pay each month, with the hope that the returns made from the investments will cover the cost of the eventual payout. 

Your premiums will then be reviewed periodically. If the investments aren’t considered to be performing to the level expected by the insurer, your cover may be changed. The insurer may increase your monthly premiums, or reduce the size of the payout received by your loved ones after you die. 

While these policies are usually cheaper to begin with, increases in your premium are likely and may be significant.

Is whole-of-life insurance suitable for me?


It entirely depends on your circumstances and what you think is best for you, so it may be suitable to seek advice. 

One of the main benefits of whole-of-life insurance is that it can help your family deal with any bills associated with inheritance tax. Currently, if an estate is valued at more than £325,000, inheritance tax will be charged at 40% on the value of the estate above that threshold (click here for the latest government information on inheritance tax).

However, the tax will need to be paid before your loved ones are given access to your estate. This can put your family in a difficult position - they need to pay a tax bill which may run into (tens of) thousands of pounds, but they wouldn’t be able to use the money in your estate to do so. 

As a result, many families are forced to take out loans just to cover this bill, which at an already upsetting time, may be particularly stressful. A whole-of-life insurance policy could help avoid this issue. The payout would provide the funds required to clear the inheritance tax bill without your loved ones needing to take out a loan or go into their own savings to cover it. This though, is reliant on the policy being written in trust.

Whole-of-life cover may also appeal if you are determined to leave some form of inheritance to your loved ones, or if you want to help with your funeral costs.

What about dependents?

 

Life insurance is crucial if you have family members who are financially dependent on you, whether that’s a spouse or children who would be left financially worse off if you were to die. However, as you get older, those loved ones may become more independent and no longer be reliant on your income. For example, once you're in your sixties, you may have cleared your mortgage and your children may have long since left the home to start their own families. 

As a result, you might prefer to choose a ‘term life’ insurance policy to cover you throughout the period in which your family would most likely need financial help, if you were to die.

Can I cash in my whole-of-life insurance policy early?
 

Some whole-of-life insurance policies will allow you to cash them in early to get some level of payout before you actually die.

Factors that determine how much your life insurance policy cash value is worth include:

  • How much you pay in premiums and how long you’ve held your policy for

  • How the insurer has invested your money and how well the markets have performed for these investments.

  • How much the insurer will charge for withdrawing money from your cash value, cancelling your life insurance policy, or cancelling the investment portion of your policy. Be sure to check the terms of your policy as the surrender value of your policy may work out as significantly less than what you’ve paid in premiums over the years. 

If you would like an adviser to review your existing cover and benefits, please get in contact.

Call for a quote

For more information and to get a quote please call us

03456 44 25 40

Apply with advice

Tips when considering whole-of-life cover:
 

  • Read the small print of your policy or call us to explain what’s covered.

  • Check the exclusions and limitations to see what’s not covered.

  • Find out whether your policy will be reviewed, and how this could affect your premiums.

  • Know whether or not you can cash in your policy before you die – if this is something you may want to do, make sure you find a policy that allows this.

  • Know what happens if you have a change in circumstances, for example falling ill or being made redundant.

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