What is whole life insurance?

Whole of life insurance cover means your loved ones get a payout whenever you die. Unlike other life insurance policies, you’re not limited by the length of the policy or your age. You could live to 120 and your family could still be looked after.

But, because the policy lasts your whole life, it's often more expensive. You need to continue paying insurance costs, even after you retire. But there are other factors to consider.

What is whole of 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, life assurance and end-of-life insurance.

Unlike level term life insurance which is for a fixed amount of time, a whole life policy covers you until you die. Some policies also allow you to stop paying your monthly costs after a certain age but your cover should still continue until you die. Check the fine print of your policy to clarify whether you need to continue making monthly payments until your death.

Some whole of life policies – known as maximum cover – link your insurance to an investment fund. The idea is that your insurance costs are invested each month to cover the eventual payout. If your investments underperform, the insurer could increase your insurance costs or reduce the lump sum that’s paid when you die.

Other types of policy guarantee the payout your beneficiaries get.

The money your loved ones receive from the policy can be used however they like. 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 important to note that Confused.com doesn't compare whole life insurance - this guide is for informational purposes only. But we can help you compare other life insurance quotes.

What types of whole life insurance are there?

There are 3 types 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 which increases the cost of your eventual payout. If the fund isn’t performing well, you might have to make bigger payments. The monthly costs of maximum cover could be lower at the beginning, but they can rise at any time.
• Over-50s life insurance - Much like standard life insurance, you pay monthly costs for an over-50s life insurance policy. A cash lump sum is then paid out when you die. But, unlike standard life insurance, you’re guaranteed to be accepted for a plan up to age 80, even if you have a pre-existing condition. You should then be covered until the day you die.

Is whole of life insurance worth it?

Whole of life insurance could bring peace of mind as you know your loved ones are looked after once you're gone. No matter what age you die, they get a payout that can help make sure the bills are paid.

With level term cover, if you live longer than the policy term, there's no payout. But the benefit of whole life cover is that your loved ones get the payout when you die no matter what.

Life assurance can also be used to deal with inheritance tax (IHT) 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 pay.

Current IHT rules state 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 increases 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.

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.

However, whole of life insurance can be more expensive than other kinds of cover. Before choosing a policy, you need to make sure you can afford it as you need to pay the insurance costs throughout your entire life. 

How much whole of life cover do I need?

It can be 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?

How much does whole life insurance cost?

Whole life cover tends to be more expensive than level term insurance. This is because 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, it often works out as more expensive. 

Don’t forget, you still have to pay insurance costs after you retire, so make sure you can afford them.

How do I reduce the cost of whole life insurance?

Here are some of the steps you can take to help reduce the cost of whole life insurance:

• 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. It means you'd make payments over a longer period of time, but those payments could be lower compared to 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.

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 insurance costs vary from one insurer to the next.

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 than 2 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 altogether.

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 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. 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 insurance costs.

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

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