If you're wondering what type of life insurance to get, you're in the right place. At Bequest, we understand that deciding what type of life insurance to buy can be a little overwhelming, that's why we want to educate people on the different types of life cover so you can find the best policy for you and your loved ones. 🤗
In this article, we're going to be getting into whole of life insurance and why it could be the policy for you.
What is whole of life insurance?
Unlike term insurance, where you are covered for a set period of time chosen by you, whole of life insurance covers you for your entire life, provided you keep up with your premium payments of course!
Whole of life cover, also known as life assurance, is often seen as a life-long investment because these policies generally accumulate cash value in which you can borrow against or cash out at any stage. 💷
How does whole of life cover work?
Just like most other life insurance policies, you pay monthly premiums. Then when you pass away, your beneficiaries receive a lump sum pay out. As long as you pay your premiums, you will be covered by your life insurance policy.
Some whole of life insurance policies out there allow you to pay your premiums until a set age - this is normally around 90. Whilst this may sound like term life insurance, with some companies, whole of life insurance would still pay out if you die after your fixed period of paying premiums.
Unlike other types of life insurance like term or over 50's cover or critical illness, you do have the option to link whole of life insurance with investments. This means that when you pay your premiums, your money can be put into an investment fund. For many, this is the biggest benefit of a whole of life policy.
What types of whole of life policy are there?
Generally, there are two main types of whole of life insurance.
- Balanced cover - this is where your premiums remain the same throughout your policy, as well as the lump sum payout that your beneficiaries receive in the event of your death. ⚖️
- Maximum cover - this is where the premiums that you pay are invested. If your investment was to do well, your premiums decrease in price or a bigger lump sum when you pass away. It's important to know that with this type of cover, the amount that you pay for your premiums could go up as well as down. Should this make your premiums more than you could afford, you could be faced with a charge to surrender your policy. 😟
How much cover will you need?
This is a popular question, and unfortunately, it's not up to us as it's completely down to you and your circumstances. However, we can tell you what you need to factor in when choosing how much coverage you need. ☂️
You need to consider what your reasons for having life insurance are. It could be to cover debts such as a mortgage, loans, credit card, it could also be used to support your loved ones financially in other ways after you die. If you have children, you may want to cover the cost of their education or provide financial security for them. 🎓
We recommend speaking with an advisor (or us of course!) to make sure you get the correct amount for you.
How much does whole life insurance cost?
When it comes to whole of life insurance, premiums tend to be a lot more expensive than other types of life cover. This is simply because your loved ones are guaranteed a pay out after you die.
Just like any other type of life insurance, how much you pay in premiums is affected by:
- your age 🧒
- how much cover you need ☂️
- your health 🍏
- your medical history 🩺
However, there are some ways that you can reduce the costs of your whole of life insurance policy. By making some healthier changes to your life, you could improve your health, these steps could include:
- Quitting smoking 🚬
- Getting more active and losing weight 👟
- Lowering alcohol intake 🍷
- Having a healthier diet 🥗
As we've spoken about above, it is important to note that you will be paying your whole of life premiums for a longer period of time compared to other life insurance policies. Before taking out a whole of life policy, ensure that you will be able to afford to pay the premiums after you retire.
How much could a policy pay out?
How much your lump sum payment is, depends on how much cover you need. With a balanced cover, you will need to decide the size of your pay out at the start of your policy.
In 2019, the average value of whole of life insurance claims was £3,465, whereas the average value of term life claims was £77,535.28.
This might seem like a low number, but it's simply due to the fact that whole of life policies are generally taken out a lot later in life when life insurance can be expensive. Because of this, people tend to opt for lower levels of cover.
Is a whole of life insurance policy right for me?
A whole of life insurance policy is right for you if you have a good chunk of money to put into a policy and want to know that no matter when you pass away, you'll leave your loved ones with a lump sum so they are financially protected. If you choose the maximum cover whole of life insurance policy, you should understand that the pay out your loved ones receive is dependent on how well your investment performs.
Whole of life insurance could also be right for you if you want to leave a pay out that would help cover inheritance tax if your estate is valued at more than £325,000. If you write your whole of life policy into a trust, you won't be required to pay inheritance tax on it.
If your whole of life policy is just to support your dependents financially, as you get older, these dependents might not be reliant on you anymore. In this case, a term life insurance policy might be better suited.
Permanent life insurance vs term life insurance
Your decision on what type of life insurance policy to get is completely down to your personal circumstances. Whilst you pay for whole of life insurance until you die, with term life insurance you only pay for and are covered for a fixed period. This means if you die after your term has ended, your loved ones will not receive a pay out.
To find out more about term and whole of life insurance, read our article here.
Whole Life Insurance Cover Could Be Very Costly
Like we've already said, whole of life insurance can be the most expensive type of life insurance. In fact, it's approximately 5-15 times more expensive than term life insurance. But, it can't be forgotten that whole of life cover can give you and your loved one's peace of mind that there is a guaranteed payout when you die.
Want help understanding the choices of life insurance policies?
If you want more help when it comes to understanding the different types of life insurance, we pride ourselves on providing the information you need.
You can read all about life insurance here. And if you have any questions or just want to chat life insurance, drop us a message on our website or email us at email@example.com. We're always happy to help out. 💛
What is a whole of life insurance policy?
A whole of life insurance policy is where your insurer pays out a death benefit irrespective of when you die. This type of policy covers you for your whole life.
Are whole of life policies worth it?
It depends on your personal circumstances. Whole of life insurance is most suitable to those who have more disposable income, want a guaranteed pay out to protect loved ones, cover funeral costs and cover inheritance tax.
What are the disadvantages of whole of life insurance?
- There is less flexibility with no option to change premium payments
- It is more expensive than other life insurance policies
- The fixed rate could mean less value for money
What is the purpose of whole of life insurance?
The purpose of whole of life insurance is to make sure you're covered for your whole life. By having a whole of life policy, you are guaranteed a pay out in the event of your death, so you have peace of mind that your loved ones are protected financially.
How does a whole of life policy work?
You simply pay your monthly or annual premiums and when you pass away, your loved ones receive a pay out to cover them financially.
You can choose between balanced cover which stays the same over your policy and maximum cover which involves your premiums being invested.
What are the three types of whole of life policies?
The three main types of life cover are:
- Non-profit whole of life (also known as balanced cover)
- With-profits whole of life insurance (also known as maximum cover)
- Unit-linked whole of life insurance
What is the average cost of whole life insurance?
In the UK, the average cost of whole of life insurance varies based on your age, health status and how much cover you want. However, the cost of whole of life insurance is significantly more expensive than other types of life insurance.
How many years do you pay for whole life insurance?
You continue to pay your whole of life premiums until you pass away. However, depending on your policy, it might be possible to stop your payments at a set age, for example, 90. You will still be covered if you pass away even after you have stopped paying your premiums.
What is a good amount of whole life insurance?
Like we've said, everyone has different circumstances and will require a different amount. It depends on how much you want to leave in a lump sum to your loved ones after you die.