What is whole life insurance?

Whole of life insurance cover means that your loved ones get a payout whenever you die. Unlike other life insurance policies, you’re not limited by the length of the policy, and it doesn’t matter how old you get. That means you could live to 120 and your partner or kids could still be looked after.

Of course, because the policy lasts your whole lifetime, it tends to be more expensive than a term policy that’s time limited. You need to pay premiums for your whole life, even after you retire. But there are benefits too because it ensures your loved ones get a payout.

A life insurance policy is printed out with a stick note on top encouraging reader to get life insurance quotes


What is whole life insurance?

Whole life insurance is a policy designed to pay out a lump sum when you die, whenever that might be. It’s also referred to as whole of life insurance since it lasts as long as you do.

Your loved ones can use the money from the policy however they need.

For example:

  • To pay off a mortgage or other debts
  • To cover funeral costs
  • To pay for living costs
  • To use as a gift from you.
  • It’s sometimes called life assurance, or end of life insurance.

How does whole life insurance work?

Once you have a policy, you make monthly payments for the rest of your life.

With some whole of life insurance policies, you might not need to make payments after a certain age. The cover is still in place until you die, though. Check the fine print of your policy to see if this is the case.

Some whole of life policies – known as maximum cover – link your insurance to an investment fund. The idea is that your premiums are invested each month to cover the cost of the eventual payout.

If your investments underperform, the insurer could put your premiums up or reduce the lump sum that’s paid when you die.

Other types of policy guarantee the payout your beneficiaries get.


How is whole life insurance different from level term?

As the name implies, whole life insurance covers you until the day you die.

Level term life insurance is for a fixed amount of time.

This is usually based on factors such as:

  • The length of your mortgage
  • When you plan to retire
  • When your kids become financially independent

With level term cover, if you live longer than the policy term, there is no payout.

With whole life cover, your loved ones get the payout when you die.


What are the benefits of whole life insurance?

Since life assurance tends to be more expensive than level term cover, you may wonder if it’s worth getting. 

One major benefit is that life assurance can be used to deal with inheritance tax if you leave your money to someone other than a spouse or civil partner.

When you leave your estate to your spouse, they usually don’t have to pay inheritance tax. But if the money goes to your children or other loved ones they might have to.

Current IHT rules are that there’s a 40% tax on the value of your estate over £325,000. This includes all money and possessions. Property might also attract inheritance tax, but if you leave it to your children your tax-free threshold goes up to £500,000.

Your assets tend to be locked until the tax is paid, so your family couldn’t sell your house to pay the tax, for example.

If you write your life assurance policy in trust, your loved ones could use the payout to cover the IHT costs.

In some cases, doing this could lower your estate’s value enough that it sits below the £325,000 threshold. Then there’d be no inheritance tax to pay at all.


How much does whole life insurance cost?

Whole life cover tends to be more expensive than level term insurance. This is down to the fact that the policy lasts for your entire life, not a couple of decades.

Although the cost per month may be cheaper with a whole life policy, because you're paying for your entire life, it may work out as more expensive.  

Don’t forget, you still have to pay premiums once you retire, so make sure you’ll be able to afford them.


Can I get a joint whole of life insurance policy? 

Yes, you can get a joint whole life insurance policy, but it only pays out when the first person in the couple dies.

It’s typically cheaper that two single life insurance policies – but the surviving partner might struggle to get a new single life insurance plan if they’re older.

You also need to consider what might happen if you split up. Some policies offer a separation option, but not all do.

Otherwise, one person might have to take over the plan if you can agree and it’s allowed, or you may need to cancel it.


How much whole of life cover do I need?

It can be a bit daunting to work out how much life assurance cover you need. You can use our life insurance calculator to make things easier, but here are some key things to look at:

  • How much of your mortgage do you have left to pay off?
  • How much other debt do you have?
  • Will your family struggle without your salary if you die?
  • How much would you want to cover funeral expenses?
  • How big a nest egg would you want to leave your loved ones?

What are the different types of whole life insurance?

There are two kinds of whole life insurance:

  • Balanced cover - This is the standard whole life policy. You pay a fixed amount every month, regardless of your age or state of health. This could make budgeting much easier.
  • Maximum cover - With maximum cover, your monthly payments are tied to an investment fund. The investment fund grows the pot of money for your eventual pay out.

If the fund isn’t performing well, you might have to make bigger monthly payments.

The monthly costs of maximum cover could be relatively lower at the beginning. But they could rise at any time, and it could be a steep increase.


How do I reduce the cost of whole life insurance?

Life insurance costs are largely based on risks to your life expectancy and your long-term health.

So, reducing these risks could be one way to keep your costs in check. It’s also important to shop around, as premiums vary from one insurer to the next.

Here are the main things to consider:

  • Compare life insurance policies - Look at the policy details and don’t focus only on the cost.
  • Be accurate with your level of cover - Overestimating how much of a payout you think you need could inflate your monthly costs.
  • Get a policy while you’re young - Your risk of death is lower at 30 than it is at 60. You make payments over a longer period of time, sure. But those payments could be lower than if you took out a policy later in life.
  • Quit smoking - Smoking is one of the bigger risk factors to your health. If you’re a smoker, attempting to quit could help your costs.
  • Lower your alcohol consumption - Another risk factor is the amount of alcohol you drink, as it could lead to health problems later in life. 

Is whole of life insurance worth it?

Whole of life insurance could bring great peace of mind as you know your loved ones are looked after when you die. No matter what age you die, they get a payout that can help make sure the bills are paid and deal with any inheritance tax owed.

However, it can be more expensive than other kinds of cover, and you’re paying those premiums your whole life. You need to make sure you can afford it and it’s worthwhile for you. Think about the rest of your estate and what assets you have to pass on including pensions. If you think your partner or children will inherit a lot, you might decide you don’t need whole of life insurance policy.

You could also find yourself having paid more into the policy than your beneficiaries will receive. 


Should I get term or whole of life insurance?

This depends on what the purpose of the policy is. 

If you want to take care of fixed costs such as the mortgage, school fees, or other debts a term policy may be right for you. 

Equally, if you’re worried about your family living without your salary, then a fixed term policy could suit your needs.

Even better, these arrangements tend to be cheaper than whole of life cover.

The downside is that if you die after the term ends, there’s no payout, regardless of what you’ve spent in premiums.

If you want to leave a legacy or make sure there’s a lump sum when you die – whole of life cover could be the better option.

Despite costing more, it’s the policy that offers a payout no matter how long you live.