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What Is Whole Life Insurance?

Whole life insurance (or whole of life insurance) is a type of life insurance that pays out a lump sum when you die.

It’s one of several options that you have when you’re in the market for a life insurance policy.

Whole life insurance policies are designed to provide life insurance for your whole life, not just a specified term. How much the policy pays out depends on the individual policy, and payments are required until the policy holder’s death. Payments might be monthly or annual, and some whole life policies are even based on paying a one-off sum to secure cover. With-profit and unit-linked whole of life policies involve investing some of the money in an investment fund while the rest is used to pay for the sum assured.

A whole life insurance policy offers a range of benefits, and we can help you to find your perfect policy.

How Does Whole Life Insurance Work?

Whole of life insurance policies will pay your next of kin a lump sum when you die, whenever that is, as long as you pay what you’re required to pay. This is in comparison to term life insurance, which only lasts for a predetermined period of time. Once term insurance has run out, you will need to get a new policy.

Whole of life insurance is available in different types, such as with-profit or unit-linked policies, where a proportion of the money you pay is invested in an investment fund, while the rest pays the life assurance. If you take out a with-profit whole life insurance policy, your policy will be reviewed regularly. This is to compare the value of the policy with the cost of the life assurance to see if the investment fund is earning enough to cover the cost of the assurance. If not, you might need to reduce the sum assured or increase your contributions. Because your policy has a cash value, you can use it to withdraw money, take out a loan or pay future premiums.

It’s possible to set up a whole life insurance policy in a trust. If you choose to do this, the payment from the policy will go to the trustees who will distribute it to the beneficiaries of the trust.

Types of Whole Life Insurance

The different types of whole life insurance that are available can offer different benefits, as well as drawbacks.

Not every type is suitable for everyone who is thinking about whole life insurance. Take a look at the various options for whole life insurance to understand what choices are available to you.

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.

With-profit funds

A with-profit whole life insurance 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.

Unit-linked funds

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.

Which Is Better: Term or Whole Life Insurance?

The other main type of life insurance is term insurance. There are several different types of term insurance, including level term insurance, increasing term insurance, decreasing term insurance and renewable term insurance. When you’re choosing a life insurance policy, you should consider the differences between whole life and term insurance to decide which one is the best choice for you.

Term life insurance tends to have lower premiums than whole life insurance. This is because it lasts for a set term, such as 20 years, and when that term is over, you will no longer be covered. You continue to pay premiums for this term and there is a payout if you die during the term. If you outlive the term, you will only benefit financially if you choose a return of premiums policy, which is a more expensive option. With term insurance, the premiums usually get more expensive as you get older. However, term life insurance is more simple than whole life insurance, which can appeal to many people.

For younger people and young families, term life insurance can 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.

Whole life insurance is a good choice if you’re thinking about estate planning. It also helps to replace income when the policy holder dies, and it can be used to help pay for the care of a child or a parent when someone dies. Although the premiums are more expensive, they can stay the same throughout the policy as you get older.

Benefits of Whole Life Insurance

Whole life insurance has a number of excellent benefits that make it a good choice when you’re looking for a life insurance policy.

One benefit of whole life insurance is that you have the chance to increase the amount of money that is paid out if you choose a policy with an investment element. The amount of the payout is the assured sum, plus the value of any investments that you have made. The value of the policy can grow over time so that your family or the beneficiaries of your estate can benefit even more. The payout also takes place as long as the policy is in place at the time of the policy holder’s death. There’s no need to remember to renew the policy or take out a new one, as long as any required payments are made every month or year.

Whole life insurance can be a good way to save, giving you no access to your cash so that you’re not tempted to withdraw it. After you have built up a cash value in your policy, you can then use it to fund your retirement. You can do this by withdrawing money or taking out a loan. The earnings on the policy’s cash value are tax-deferred, which is another financial benefit. The payout could also be used for a variety of things, from replacing your income to paying for an inheritance tax bill.

When the cash value of the life insurance policy is large enough, it can be used to pay the premiums so that the policy is effectively paying for itself. This can help to balance out the higher cost of whole of life insurance premiums. However, it is important to remember that your premiums could be higher if the investment portion of the policy isn’t performing so well.

Premium Rates

There are various ways that you might pay your premiums when you take out whole life insurance. Your premiums can change based on a set amount or based on the Long Term Interest Rate, which is set by The Bank of England. You can choose from policies that offer you a discount and a guarantee of future price changes with an annual fixed premium change. There is also the option of a variable annual premium change, which is based on the Long Term Interest Rate. Both of these options can help you to save money.

Get whole life insurance quotes from Key Man Insurance to find the best whole life insurance policies for your budget and for your needs. We can help you to discover and compare the best options.

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Meet Our Team

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meet our team

Jody Pearmain
Jody Pearmain

Managing Director & Founder (My Key Finance Ltd)

Lori Norton
Lori Norton

Administration Manager at MyKeyManInsurance.com (My Key Finance Ltd)

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Tyler Pearmain

Senior Keyman Insurance Adviser at MyKeyManInsurance.com (My Key Finance Ltd)

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