What Is Whole Life Insurance?
In short it is a type of life insurance which guarantees to pay out a lump
sum of money when you die.
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Types of Whole Life Insurance
The different types of whole life insurance that are available can offer
different benefits, as well as drawbacks.
Non-profit whole life policies
A non-profit whole life insurance policy doesn’t have an investment element to it. The premiums are fixed and the policy holder receives a lump sum on death.
A with-profit policy has an investment element to it. This means that the amount paid out on death is the combined amount of the sum assured of the policy and any money made from the investment. When you invest with a with-profit policy, the plan helps to balance out the volatility of the stock market. The plan keeps the investment returns from good years and payments can be topped up in bad years.
A unit-linked whole life policy has an investment element with monthly premiums used to buy units in a selected fund. As the number of units held grows, the value of the policy increases too. With this type of policy, your premiums increase if the investment growth is poor.
What is the difference between Term and Whole Life Insurance?
Is Whole of life insurance worth it?
For younger people and young families, term life insurance may be the best option. This is because it is less expensive and easy to set up and manage. You can set it up like your car insurance or home insurance. When you’re younger, you have a lower risk of passing away but might also have a family to care for. This is when term insurance can make sense, covering you as a “just in case”, because you never know what could happen. When the term insurance policy runs out, you can take out a new policy if you want to ensure you still have protection. With the low cost payments, you can have more money left for other investments, savings or important day-to-day expenses.
However, whole life insurance policies can be better for some people, particularly those over 30. If you can afford to spend a bit more on your life insurance premiums, you might choose to have whole life insurance instead. One excellent reason to do so is that it will help to cut your family’s tax bill and, in particular, help with inheritance tax. You can write a whole life policy under a trust, which means a tax-free lump sum payout when you die. This can then be used to pay inheritance tax, which is charged at 40% of everything in an estate over the tax-free allowance of £325,000.
Benefits of Whole Life Insurance
How Are Whole Life Insurance Rates Calculated?
Overall, the premium for a whole of life insurance policy will depend on the specific policy and the individual factors of the policyholder. It is important to shop around and compare policies from different insurers to find the best policy and premium to meet your needs. You can work out how much cover you need using a whole of life insurance calculator.
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