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In short it is a type of life insurance which guarantees to pay out a lump
sum of money when you die.
In short, what is whole of life insurance? It’s a type of life insurance that guarantees to pay out a lump sum when you die, provided the policy is still in force and premiums have been kept up, and it’s one of several options available when you’re looking for a policy. Unlike term cover, this type of policy lasts for the policyholder’s entire lifetime rather than a fixed number of years.
How much the policy pays out depends on the individual plan, and premiums are usually required until the policyholder’s death, whether paid monthly, annually, or in some cases as a one-off sum to secure cover. With-profit and unit-linked whole of life policies involve investing part of the premium in a fund, while the rest is used to pay for the sum assured. We work with a wide range of insurers, so we can help you find the right whole of life insurance UK policy and compare whole of life insurance quotes side by side.
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Whole of life insurance policies pay your beneficiaries a lump sum whenever you die, as long as you’ve kept up your payments, unlike term life insurance, which only lasts for a set period and needs replacing once it runs out.
Cover is available in different forms, such as with-profits fund and unit-linked fund policies, where a portion of what you pay is invested while the rest funds the life cover. With a with-profits policy, your plan is reviewed regularly to compare its value against the cost of the cover and to check whether the fund is performing well enough to support it. If not, you may need to reduce the sum assured or increase your contributions. If your policy includes an investment element, such as a with-profits or unit-linked plan, it may build up a cash-in value over time, which you can sometimes use to withdraw money, take out a loan, or help pay future premiums. Non-profit whole of life policies don’t build any cash value, since they have no investment element. It’s also possible to set the policy up in a whole of life trust, in which case any payout goes to the trustees, who then distribute it to the beneficiaries.
The different types of whole of life insurance on offer come with their own benefits and drawbacks, and not every type suits everyone. It’s worth understanding what’s available before deciding which suits you.
Non-profit whole of life policies
These have no investment element. Premiums are fixed, and the policyholder’s beneficiaries receive a set lump sum on death.
With-profits fund policies
These include an investment element, so the amount paid out combines the sum assured with any growth from the investment. This structure helps smooth out stock market volatility, since good years can help top up returns in weaker ones. Premiums may be reviewed periodically and could increase if the fund isn’t performing well enough to support the cover.
Unit-linked fund policies
These also carry an investment element, with monthly premiums used to buy units in a chosen fund. As the number of units grows, so does the value of the policy, though premiums can rise if investment growth is disappointing.
Term life insurance and whole of life insurance differ in several important ways. Term cover runs for a specific period – such as 10, 20 or 30 years – and pays out only if the policyholder dies within that term. Whole of life insurance, by contrast, provides cover for the policyholder’s entire life.
Premiums for term insurance are typically lower, particularly for shorter terms, while whole of life insurance premiums cost more but provide lifetime cover and can build cash value over time. Term policies don’t accumulate any cash value, whereas whole of life policies with an investment element, such as with-profits or unit-linked plans, can build a surrender value that might be used for paying premiums, taking out a loan, or withdrawing cash – non-profit whole of life policies don’t build cash value in the same way. Whole of life insurance also usually includes an investment component through with-profits fund or unit-linked fund arrangements, which standard term policies don’t offer. Broadly speaking, term insurance suits those who want affordable, temporary cover, while whole of life insurance suits those wanting guaranteed lifetime protection – and the right choice depends on individual needs and financial goals.
For younger people and young families, term life insurance is often the most sensible option, since it’s less expensive and straightforward to set up. When you’re younger, the risk of dying is lower, but you may still have a family to protect, which is exactly what term cover is there for. Once the term runs out, a new policy can be arranged if cover is still needed, and in the meantime, lower premiums leave more money for other savings, investments or day-to-day expenses.
Whole of life insurance tends to suit people who want cover for their whole life, for example, to help pay for funeral costs, support inheritance planning, or leave money behind for family. One strong reason to choose whole of life cover is inheritance tax planning: placing the policy in trust can help ensure the payout falls outside your estate for Inheritance Tax purposes, and your beneficiaries can then use the money to help cover any Inheritance Tax due, currently charged at 40% on everything in an estate above the tax-free allowance of £325,000 (based on current rates).
It’s a sound choice for anyone thinking seriously about estate planning, and it can also help replace lost income or fund care for a child or parent after a death. Although premiums cost more than term cover, they typically stay level throughout the policy, even as you get older, which makes budgeting easier over the long run.
Overall, whole of life insurance offers long-term, guaranteed cover and can be a genuinely useful tool for financial and estate planning, though it’s worth carefully considering the policy terms, premiums and other factors before taking one out.
Whole of life insurance premiums are calculated based on a variety of factors, including:
Overall, the cost of whole of life insurance depends on the specific policy and the individual’s circumstances, so it’s worth shopping around and comparing options from different insurers. If you’re comparing whole of life insurance cost UK options, it’s worth getting quotes from several insurers before deciding. Established UK providers such as Aviva, Zurich, LV=, Royal London, Scottish Widows and Vitality all offer whole of life cover, and it’s worth considering whether guaranteed acceptance or a policy subject to medical underwriting suits you better before making a decision. Comparing quotes carefully is the best way to find the best whole of life insurance UK provider for your circumstances. It’s worth noting that guaranteed acceptance and over-50s plans are a distinct type of whole of life cover – they’re typically simpler, don’t usually build cash value, and often provide lower cover amounts than fully underwritten policies, so they’re not a direct like-for-like alternative.
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 most suitable 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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