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Whole Life Insurance: Everything you need to know

Finding the right life insurance policy can feel like a challenge. There’s so much overwhelming information on the market and various policy types that meet different needs. Here, we delve into everything you need to know about whole life insurance, how it works and whether it’s the right product for you.

What is Whole Life insurance?

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A whole life insurance policy is an insurance product that provides life cover until you pass away. Unlike other types of life insurance, such as term life, it doesn’t matter when you pass away, as you are covered for the rest of your life. This type of product isn’t offered by all insurance companies, so you’ll need to shop around to find a good policy.

A great way to find a good deal on a whole life insurance policy is to employ the services of an insurance broker or price comparison site, which will search the market for the best deal possible.

How does a whole life insurance policy work?

A whole life insurance policy works like other life insurance types. You pay a monthly premium to an insurance company, which in turn offers you cover for the rest of your life. The insurance company then pays out a lump sum of money to your chosen beneficiaries when you pass away. These funds can be used to cover a variety of things, such as the outstanding amount on your mortgage or your funeral costs.

How does whole life insurance work?

You should note that since a payout is guaranteed, whole life insurance policies tend to be more expensive.

You should note that since a payout is guaranteed, whole life insurance policies tend to be more expensive. As a result, you need to make sure to find the best deal possible. We provide a series of helpful tips on lowering your insurance premium below.

Which is better, term or whole life insurance?

We compare plans from the leading life insurance providers

Firstly, it’s essential to understand what term life insurance is. Unlike whole life insurance, a term policy will offer you cover for a predetermined period. You usually choose this during the application process. The term life insurance policy will then cover you if you pass away within that predetermined period.

Which is better, term or whole life insurance?

Term life insurance is further divided into two types – level term and decreasing term.

Term life insurance is further divided into two types – level term and decreasing term.

  • Level Term: The payout of a level term policy remains the same throughout the insurance term. So if you’ve applied for £120,000 of cover over 25 years, your payout will be £120,000 regardless of when you pass away in those 25 years. Since the payout stays the same, your monthly premium also remains unchanged for the policy duration. This type of policy is suitable for paying an interest-only mortgage.
  • Decreasing Term: Unlike level term, the payout of a decreasing term policy drops over time. This means that the premium paid to the insurance company also drops throughout the insurance period. This type of policy is popular with customers looking to cover a repayment mortgage or other debts that will reduce with time.

Which is better?

In general, neither is better than the other. Each type of policy has its uses and will suit different requirements. If you’d like to cover your funeral costs, an interest-only mortgage, or leave a lump sum inheritance to a loved one, a whole life insurance policy is best. This is because you have a guaranteed payout when you pass away.

If you wanted to cover your funeral costs and you took out a term life policy, you’d lose out on your payout if you lived beyond the insurance term.

How to choose between whole and term life insurance?

red and white round fruits on black surface

As mentioned earlier, the best policy will depend on your needs. You must take into account what you want to be covered and for how long. This can be your mortgage, your family’s living costs if you pass away, or other debts such as credit cards. A great way to measure this is to use a life insurance calculator. Simply input your requirements, and you’ll get a rough estimate of how much insurance you need.

You can also get in touch with a mortgage company or broker to discuss your options.

What types of whole life insurance can you choose from?

Like term life insurance, whole life policies are further divided into two types – investment and non-profit.

Non-profit whole life insurance

This is the type of whole life policy most commonly offered by insurance companies. In this case, you pay a set monthly premium, and your beneficiaries receive the fixed coverage agreed on between you and the company.

Investment whole life insurance

Unlike with a non-profit policy, insurance companies will utilise part of your monthly premium and invest it. This means that your beneficiaries might receive more or less than the coverage you agreed on when you pass away.

The right choice for you will depend on the amount of risk you’re willing to put up. Although riskier, an investment policy opens up an opportunity for a much larger payout; however, there’s a possibility that your loved ones might receive less. If you’re unsure which is best for you, discuss your options with an insurance broker or an investment consultant for a second opinion.

How much is whole life insurance per month?

The cost of your insurance policy will depend on various factors. Companies will take into account your occupation, health, medical history, job, and smoking status to determine your premium. The coverage amount and period will also influence the cost. A whole life insurance policy tends to be more expensive than term life since there’s a guaranteed payout regardless of when you pass away.

How much does whole life insurance cost?

To give you a better idea of how much you might be paying for a whole life policy, we’ve put together a helpful table below.

To give you a better idea of how much you might be paying for a whole life policy, we’ve put together a helpful table below. Note that these estimates are for a non-smoking applicant looking for around £100,000 of cover.

Age Approximate monthly cost
30 £70
40 £100
50 £150
60 £210
70 £350

You might find that your quote is higher than these estimates. If that’s the case, we’ve provided some helpful tips below on how to reduce your premium.

How does whole life insurance payout?

Like any other life insurance policy, a whole life policy pays out when you pass away. However, unlike term life, your payout is guaranteed and will be made regardless of when you pass away. As evidenced by our cost estimate sheet, this type of policy is more expensive than term life.

There are instances when an insurance company will decline a payout to your beneficiaries. It’s essential to check the small print in your policy to avoid any disappointments. Below, we take a look at some of the most common reasons.

When would a whole life insurance policy not payout?

Insurance companies will have specific rules and regulations regarding their life insurance policies. It would be best to discuss these with the insurance provider so that your beneficiaries aren’t faced with a declined claim when you pass away. The good thing is that many of the most common reasons can be avoided:

Failure to disclose information

If you’re thinking of landing a cheaper premium by lying on your application – don’t. If you fail to disclose information that could affect your insurance premium, your beneficiaries could be declined a payout if the insurance company finds out. This includes your smoking status or any pre-existing health conditions you may have. If your insurance company finds out before you pass away, your policy could be terminated, or you could be forced to pay a flat fee for the premium you’ve missed.

Committing Suicide

Most insurance companies will not pay out in the unfortunate event that someone commits suicide within 12 to 24 months of their policy. This defence mechanism aims to protect insurance companies and vulnerable customers looking for an insurance payout to cover their debt. As a way to screen for these issues, insurance companies require applicants to disclose whether they have or have had mental illness issues.

Cause of death not covered by the policy

Another common reason is when the insurance company does not cover the cause of death. An example would be if a policyholder died whilst competing in motorsport or taking part in an extreme sport. Many insurance companies state that in these situations they will not cover the customer. To avoid this issue, policyholders should look to get short-term life insurance for the period in which they are taking part in the hazardous activity.

Who buys whole life insurance?

As discussed earlier, the main benefit of a whole life insurance policy is that your beneficiaries are guaranteed a payout. The reasons for taking out this type of policy include:

  • Cover funeral costs – According to Dignity Funerals, the average cost of a burial funeral in the UK currently stands at £5,033.
  • Leave an inheritance – This is a great way to leave your loved ones a lump sum of money that can be used as a downpayment on a property or cover university costs.
  • Cover inheritance tax – If your estate is worth more than £325,000 in the UK, your loved ones will be liable to pay inheritance tax. The payout of your whole life insurance policy can help your beneficiaries avoid dealing with this stressful situation.
  • Cover your family’s living costs – If you are the primary income earner, would your family be able to maintain the same quality of life if you were to pass away? A whole life policy is a great way to ensure that your loved ones are protected if you die prematurely.

Over 50s Life Insurance

Many insurance companies offer Over 50 life insurance policies as their sole whole of life insurance product. Unlike a regular whole of life policy, Over 50s life insurance is mainly used to cover funeral costs. The coverage amount tends to be much lower, but so are the premiums.

There are some differences to taking out an Over 50s policy over a whole of life policy which we cover in the table below:

Over 50s Policy Whole Life Policy
Rest of life cover Rest of life cover
Guaranteed acceptance if you’re within the specified age range (typically 50-80) Approval depends on application details and medical condition
No medical questions asked Medical questions required
No medical examination Some companies might require a medical depending on your condition and age
Coverage tends to be much lower (typically up to £30,000) Coverage can be much higher (typically up to £750,000)

Since the coverage amount of an Over 50s policy is lower, policyholders tend to use it to cover funeral costs or other more minor expenses. This type of policy would not be suitable to cover a mortgage or your family’s living costs when you pass away.

How much whole life insurance do I need?

It can be challenging to calculate how much life insurance coverage you need on your own. You should first decide whether you want just your mortgage paid or to cover your family’s living costs. You can then use a life insurance calculator to get an estimate of how much insurance you need.

Whole life insurance

It’s essential to be thorough in this process since whole life policies aren’t cheap, and you don’t want to be paying for more than you need.

It’s essential to be thorough in this process since whole life policies aren’t cheap, and you don’t want to be paying for more than you need. You should take into account inheritance tax, how much your family needs to maintain the same lifestyle and the cost of your interest-only mortgage. This should give you an indicator of how much you need.

How to cancel whole life insurance?

Each insurance company will have different regulations when it comes to cancelling a whole life policy. You should check if you’re able to recover the cash value of your policy before you cancel. This usually depends on how long you’ve had your policy for.

One of the main reasons for cancellations is that whole life insurance policies are more expensive than term policies. To avoid paying more than you can afford, make sure you get multiple quotes and consider the cost implications on your living expenses.

Most insurance companies will have ‘surrender periods’ implemented as defence mechanisms to ensure that they don’t lose money with your policy. This usually means that you’ll pay a fee for cancelling your policy early, or you won’t receive your policy’s cash value.

If you’ve surpassed the surrender period, there are a couple of options you can take:

  • You opt to take out your policy’s cash value (if offered by the insurance provider).
  • You request to switch to a term life policy.
  • You lower your premium by reducing the coverage value.

Note that your options will differ depending on the company you choose, so make sure to discuss these details before taking out a policy.

Who has the best whole life insurance policy?

The best company will depend on your requirements and the products on offer at the time. You’ll find that not all companies offer the same policies, rewards, benefits, and prices, so it’s essential to shop around before settling on a policy.

As with taking out any insurance, you need to make sure to discuss the small print of your policy in detail. You wouldn’t want your beneficiaries to be declined a claim due to a small clause that you failed to realise. Also, make sure to use a life insurance calculator so that you’re getting a good idea of how much coverage you need.

Can you take out a joint whole life insurance policy?

If you and your partner are interested in taking out life insurance, you should consider a joint policy. This is usually available with most insurance companies that offer whole life insurance. The main benefit is that you and your spouse can save up to 40% on the cost of coverage instead of taking out two separate policies.

Usually, the payout is made after the first death of the two, but sometimes it can be after both policyholders pass away. Make sure that you clarify with your insurance provider which one applies to you.

How to reduce your whole life insurance cost?

If you’re interested in whole life insurance but you’re feeling priced out due to the high premiums, there are specific measures you can take to help lower your premium. Although there are factors that you can’t help, such as age and pre-existing conditions, there are variables under your control that you should work on.

The first step and best way to reduce your premium is to quit smoking. This will significantly affect your premium since smoking can cause various health implications later in life. It would help if you also made an effort to lead a healthier life and reach an optimal BMI. Insurance companies consider your weight to measure your chances of developing other health complications in the future.

Another fantastic way to lower your premium is to make sure you shop around. The first quote you receive is rarely the cheapest or best one, so make sure to look around. The best way is to go through a price comparison site or insurance broker, both of which will search the market for the best deals.

Can you get a whole life insurance policy with pre-existing health conditions?

If you have pre-existing health conditions, you must inform your insurance provider. Failing to do so could result in your beneficiaries being denied a payout. Most insurance providers offer life coverage to customers with a pre-existing condition; however, they will charge you a higher premium.

The increase will depend on the type of condition you have, such as:

  • High BMI
  • Diabetes – Type 1 and 2
  • Mental illness
  • Cancer
  • Asthma
  • Kidney disease
  • Strokes

If your application is declined, this isn’t to say you can’t get coverage. You must simply shop around. Chances are there are companies on the market that will offer you cover. If possible, you should opt to go with an insurance provider or broker with a history of dealing with customers that suffer from your condition. This can help reduce your premium and increase your chances of finding cover.

Can you get critical illness cover?

Most insurance companies in the UK won’t provide critical illness cover with your whole life insurance policy. Critical illness cover will provide you with an early payout if you are diagnosed with an approved critical illness. The funds can be used to cover the medical bills of your condition, which can often last until you pass away. Usually, with a term policy, you can add this benefit for an extra monthly cost.

The early payout can also help cover your loss of income whilst you are out of work. This is especially important if you are the primary income earner in your household. Without the protection, could your family and loved ones maintain the same quality of life?

If you’re set on getting critical illness cover, you’ll find that most providers will allow you to take it out as a stand-alone policy. However, paying two monthly premiums will be an expensive cost.

Should you get whole life insurance?

Whether you should get whole life insurance or not will depend on your particular requirements. If you’d like to leave a considerable inheritance or cover the inheritance tax costs of your estate, a whole life policy can make things easy for your beneficiaries.

If you’re interested in covering the costs of your funeral, then you could opt for an Over 50s life insurance policy. The premiums are much lower, and you are still guaranteed a payout. On the other hand, if you only need life insurance to cover you over a certain period, such as your mortgage term or the period in which your children are likely to be still financially dependent on you, you should opt for a term life policy.

If you’re still unsure, you can always get in touch with an insurance company or broker to discuss your requirements and talk through your options.