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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. The policy should support your family even if you live to 120.

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.

We don’t currently offer whole of life insurance. But we can offer guidance on this type of cover, and offer some alternatives.

Matthew Harwood, Home & lifestyle insurance expert at Confused.com

Written by Matthew Harwood Home & lifestyle insurance expert 7 min read | Published 10/10/2023

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What is whole of life insurance?

It’s a life insurance policy designed to pay out a lump sum when you die. Whole life policies cover you until you die. This is different to level term life insurance that lasts for a fixed amount of time.

Some whole life policies also allow you to stop paying your monthly costs after a certain age. But your cover continues until you die. Check the fine print of your policy to clarify whether you need to continue making monthly payments until your death.

This type of cover is also called whole of life insurance, life assurance and end-of-life insurance.

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

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 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 this type of 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.

Learn more about over-50s life cover

Is a whole of life insurance policy worth it?

Whole of life insurance can provide support for your loved ones after you've died. No matter what age you die, they get a payout that can help make sure the bills are paid. According to the ABI, this type of cover also has a 99.99% payout rate, making it the most guaranteed to payout compared to other policies, based on figures for 2022.

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.

But 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 do I reduce the cost of whole life insurance?

Here are some of the steps you can take to help reduce the cost of your cover:

Compare life insurance policies - Look at the policy details and don’t focus only on the cost. Look online and find insurers who offer it, and compare the details before you make your decision.
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 and calculated 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.

What our life insurance expert says

''Although we don’t offer whole of life insurance, it could be the right option for you for peace of mind, if it fits within your budget and needs. We can offer lots of other similar alternatives for more options to consider.''

''With such an important consideration, make sure you shop around, explore all your options, and get the right level of cover for you and your family."

Matthew Harwood Home & lifestyle insurance expert

What other types of life cover can I get?

Joint

Joint cover 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.

Mortgage

A mortgage life insurance policy is designed to pay off your mortgage when you die, so your loved ones can keep your home and won't be left with mortgage repayments they can't afford. It's usually available as a decreasing or level term policy.

With both decreasing and level term policies, a lump sum is paid if you die during the policy.

With level term policies, the same amount is paid out, no matter when you die. But with decreasing term policies, the payout amount decreases over time with the balance of your mortgage.

Decreasing term policies are usually cheaper, and suitable for repayment mortgages where the mortgage balance decreases over time. Level term life insurance may be better for you if you've got an interest-only mortgage with a fixed balance where repayments only cover the interest.