TL;DR
Whole of life insurance - key points
Whole of life insurance is designed as cover without a fixed end date.
It is usually more expensive than term cover, but may fit long-term family or estate planning goals.
Everyone has at some point thought about the future and security of their family. When you decide to have children or get married, you are taking responsibility for others and it is very important that you also take care of the financial aspect. How does whole-of-life insurance work and why should you consider it?
What is whole-of-life insurance? How does it work?
Whole-of-life insurance is a form of policy that protects your loved ones against the sudden loss of the income you receive. In the event of your death, these people will receive a one-off payment from the insurance company regardless of when you die. In this case, the insurance payment is certain and the timing of the insured person’s death does not matter.
It is therefore quite a policy than standard life insurance, which only guarantees that the family will receive a payout if the insured dies within a certain period of the insurance contract. For the simple reason that the insurance company knows that it will have to pay out at some point, whole life insurance is usually more expensive than term life insurance. However, as we mentioned, the payout is guaranteed in this case.
We should add, however, that in some situations, the insurance payout will not happen. The most common reason for rejection is the concealment of certain information during the conclusion of the contract, for example regarding mental health.
You can find out more about whole life insurance on the government’s Moneyhelper website.
Do I need Whole-of-life insurance?
After reading the above paragraph, you’re probably thinking that a whole-of-life policy is the perfect product, after all, the payout will almost certainly happen. The reality, however, is a little different.
A whole-of-life policy is a good solution for people who want to leave some form of inheritance to their loved ones and cover some inheritance tax (IHT). Such insurance will also help with funeral costs, mortgage repayments or funding your children’s education. However, if you have no family, such a purchase is unlikely to be justified. You may also find that insurance for a shorter period than your whole life, for example 20 years, is a better choice. The choice is yours and before you make it, it is worth knowing the premiums you will be paying.
How to choose the right life insurance policy?
The decision to buy a whole-of-life policy can be a difficult one. The first step to choosing a whole-of-life policy is knowing what cover you need and what monthly or annual premium you can afford. Choosing the right product requires some calculations and answers to difficult questions about how you can save and invest your money. No one can make this decision for you, but a good option is to go to a proven adviser.
Summary
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Frequently asked questions
Is whole of life more expensive than term cover?
Usually yes, because cover does not end after a fixed term.
Will the policy always pay?
Payment depends on the policy remaining active and terms being met, including accurate application information.
Is it suitable for mortgage protection?
Many mortgages are protected with cheaper term cover, but the right choice depends on purpose and budget.