No-one can truly predict how long they will be around to keep up with financial commitments and bills (as well as living life to the fullest, of course!) Whole of life insurance is an elegant solution to the problem of leaving our loved ones unable to pay those bills in our absence. In this guide, Think Plutus will take you through the ins and outs of whole of life insurance, covering what it means in the UK, where you can find the best deals and how to compare this type of cover with other alternatives like term life insurance.

Read on to learn more and contact us to get tailored advice suited to your circumstances. Our advisers are independent experts with whole of market access to UK insurance providers and products. Our knowledge and experience will enable you to find the right cover for your individual needs and circumstances.

What is whole of life insurance?

Whole of life insurance is a life policy that stays in place to provide a benefit for your nominated relatives in the event of your death, regardless of how long you live for. As long as you keep up with your premiums, you are covered for life. There is also a savings element included whereby a sum of money accumulates over your lifetime.

A whole of life insurance policy guarantees that the agreed payout will be released to your nominated benefactors when you die. The primary advantage is that there is no limited term involved, meaning you don’t need to worry about the fact that you don’t really know how long you’ll live after taking out the policy. This isn’t the only advantage, however, so read on to learn about the other benefits that you could reap during your lifetime.

How does whole of life insurance work?

As with other life insurance policies, you will pay an agreed premium in exchange for the promise of a lump-sum payout to your benefactors upon your death. This payout is known as a ‘death benefit’. With whole of life insurance, you must keep up with your premium payments (whether monthly or yearly) for as long as you live, for an agreed period of time, or at intervals as a one-off sum. Different policies will have different terms and conditions regarding the way premiums are paid.

The majority of whole of life insurance policies incorporate an investment element that builds up a ‘cash value’, taken from a portion of your premium. This functions as a form of equity and, as the fund grows, you have the option of cashing in some of its value tax-free. These withdrawals will not have any impact on the death benefit since it is a separate benefit for you to use during your lifetime.

Some policies, known as ‘universal life policies’, allow you to assign some of that cash value to your beneficiaries to add to the agreed death benefit.

Why take out whole of life insurance?

Whole of life insurance typically costs more than term life insurance, so what are the advantages that make it worth getting? Here are the main advantages of a whole of life policy:

  • It provides ultimate peace of mind because it means your loved ones are guaranteed to receive that financial protection no matter when you die.
  • The payout can be written into a trust to be exempt from inheritance tax, meaning your loved ones could receive more than they would with term life cover. An adviser can explain this in more detail.
  • The cash value can provide you with tax-free funds while you’re still alive.

What does whole of life insurance offer?

Overall, peace of mind for you and your family is the thing that whole of life cover offers more comprehensively than the alternatives since the payout is guaranteed no matter when your death occurs. If arranged correctly, the payout can be tax-free, and the full amount they receive can be higher than with term life cover due to the investment element. That said, it wouldn’t necessarily be higher than a like-for-like premium.

Whole of life insurance also offers the possibility of tax-free withdrawals during your lifetime, which is a very appealing factor for many people.

What is covered by whole of life insurance?

Like with term life policies, whole of life insurance pays a death benefit to your loved ones, and they can use those funds in any way they want. Often, the money goes towards funeral costs, covering inheritance tax liability, paying off debts, making mortgage payments, or anything else that would otherwise cause problems due to the loss of income from your death.

The precise details of what is covered depend on the insurer and the exact policy you go with. Some policies, for example, will not cover certain causes of death such as alcohol abuse.

Questions to ask

The best way to find the whole of life insurance policy that is right for you is to recruit an experienced broker who has a depth of knowledge about the types of issues customers encounter with whole of life insurance. They can advise on the types of features that are available and warn of potential pitfalls with certain policies.

There are a few general points that will ensure you are asking the right questions when you explore your options yourself. Consider the following:

  • Will regular payments have to be made for life?
  • Will your premiums be fixed, and if so, for how long?
  • Can you change your level of cover at a later date? For example, you may wish to reduce it if your financial commitments decrease (due to paying off your mortgage, perhaps.)
  • What will happen to your premium when the policy is reviewed?
  • What charges or penalties are payable for cancelling your policy?
  • Are there protections in place if you become unable to pay the premium?
  • What exclusions are listed that would prevent a payout? Typically, this means certain causes of death.

Do I need whole of life cover?

The main purpose of whole of life insurance is to prevent family members who currently rely on your income from being plunged into financial turmoil. If you don’t have any dependants, this will not be a concern for you. In fact, even if you do have dependants, you may find that a term life insurance policy is a better fit for your needs.

If, for example, you have already met most of your financial commitments, you have grown-up children who already own assets and/or you have reached an age where you’re unlikely to outlive the term of a life insurance policy, a whole of life policy probably won’t be necessary.

Frequently asked questions

Can I get joint whole of life insurance cover?

Yes, this is usually possible. It will generally be cheaper than taking out two separate policies, but there will usually only be a single payout after one person on the policy dies. There are, however, some joint life second death policies out there.

Is the payout tax-free?

Life insurance payouts are subject to 40% inheritance tax since they are added to the estate (obviously, the total value will have to exceed the threshold for inheritance tax to kick in). This can be got around, however, by committing the policy to a trust. Doing so could make a huge difference to your dependants, so it is recommended that you consult an adviser to have this arranged.

Is whole of life insurance available for over-50s?

Whole of life cover should certainly be an option if you are aged 50+. Premiums usually get higher the older you are, but this shouldn’t prevent you from finding a good deal. Contact the experts at Think Plutus to find the best premiums available.

Are there any whole of life health insurance plans?

Certain whole of life insurance policies have critical illness cover built-in to provide financial support in the event that you develop a serious health condition in your lifetime. Again, the advisers at Think Plutus will be able to help you find a suitable product if you’d like this additional cover.

Can I apply online?

There are cases where you can apply for whole of life insurance online, but it is not recommended to make such a large financial commitment without seeking professional advice first. Think Plutus can help you compare products from the full market rather than those offered by a single insurer, helping you get the best possible deal.

What happens if I no longer want my whole of life insurance cover?

If you change your mind about your policy later on and wish to surrender it, all policies will allow you to exchange the fund value for cash. The amount you receive will have exit charges or penalties deducted by the insurer. Be warned, however, that some insurers do not permit this, and different insurers will have different charges/penalties for cancellation. Check these details carefully before you commit to any policy.

How much whole of life cover will I need?

When you take out any form of life insurance, it needs to cover significant debts you will leave behind and provide the regular income for your family that you currently bring home. You may also want to factor in future expenses like university fees.

You will find plenty of life insurance calculators online, but we recommend working with an experienced adviser to help ensure your calculations are accurate and take everything into account.

When should I get whole of life insurance?

The younger and healthier you are, the cheaper your premiums will be for any life insurance policy. Whole of life insurance is worth taking out as early as you can, as this will mean there is more time for the savings element to grow. If you play your cards right, this money can be used to finance major purchases such as putting down a deposit for a home.

Is whole of life insurance available for people with diabetes?

If you are a diabetic, you should still be able to find an insurer that will accommodate you, but you should expect to pay a higher premium. Fortunately, the specialist brokers at Think Plutus are on hand to help, and we can still find you a good deal. We have experience working with clients who have all manner of chronic health conditions and we never fail to find the best premium available.

If you are diagnosed with diabetes after you have already taken out any type of life insurance, you should still be able to keep your original premium.

Speak to an expert

If you still have questions about whole of life insurance, or if you are looking to apply in the near future and want to ensure you secure the right cover, Think Plutus is ideally placed to help. We have access to the full market of insurance providers and policies in the UK, along with a wealth of knowledge and experience of different types of customer and policy. With our help, you will find the right product to offer lifelong protection for you and your loved ones.

Simply contact us today and one of our advisers will arrange a free, no-obligation chat to answer your questions and learn more about your circumstances in order to link you with the whole of life cover that’s right for your needs.

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