What is Whole of Life Insurance

Whole life insurance basically ensures that a policy holder’s dependants – wife, partner, children or family – receive a guaranteed cash payment when the insured dies.

How does it differ to regular life insurance?

Regular life insurance comes in the form of temporary term, or term life, insurance which only pays out if the policy holder dies within the policy term. Whole of life insurance guarantees a payout – providing all your premiums are paid and up to date when you pass away.

What is usually required?

Because of the guaranteed payout upon the policy holder’s death, premiums are usually higher than those in term life insurance policies. They are generally required to be paid monthly or annually for the duration of the policy holder’s life, as opposed to a period of ten years, for example.

The different types of whole life insurance

There are two main forms of whole life insurance. These are:

  • Balanced cover – under this type of cover, the premium that is paid by the holder each month is split into two;  one half is saved and goes towards your assured sum (the amount which is guaranteed to be paid out on the event of your passing) and the other half is invested by the insurer
  • Maximum cover – under this type of cover, the holder is guaranteed that the initial premiums will not go up for the first ten years of the policy. The amount you pay each month will remain the same until the start of the 11th year, when the policy will be reviewed and – if necessary – the premiums raised

Things to consider

The obvious benefit of whole life cover, as previously mentioned, is that the insured’s family are guaranteed a payout. If you’re looking for this level of assurance then it’s likely that this type of policy will suit. However, guarantees don’t come cheap and you will find that premiums are – on the whole – more expensive than those payable under a term life policy. The difference to pay on top may be manageable, but because premiums are due for the duration of your life, monthly changes to them could leave you financially exposed. If, for whatever reason, you find yourself unable to pay the premium once the rates have been raised by the provider, then you will not be covered and your previously-paid premiums could go to waste.

Things to look out for

  • Some policies can be paid upfront in as few as five years, or even in a single payment.
  • Quotes can vary wildly from provider to provider. TotallyMoney.com can help you compare quotes from different companies.
  • Some policies allow you to choose a yearly increase option, increasing your cover and premium each year by a small percentage to protect against the cost of inflation
  • Some insurance plans can be put into a trust, which may help with inheritance tax planning