Whole of life insurance
What is whole of life insurance cover and how does it work?
Whole of life insurance covers you for your entire life as long as you keep paying premiums, paying a lump sum to your family or estate when you die. This page explains how whole of life works, the difference between guaranteed, unit‑linked and Section 72 cover, what affects the cost and how to choose the right policy based on your needs, age, health and budget.
How is whole of life insurance different from term life insurance?
Some insurers offer life policies that insure you for your whole life or for as long as you keep paying premiums. The cost is higher than with basic term life insurance and can increase at regular intervals.
Whole of life insurance remains active for your whole lifetime, provided your premiums are paid, while term life insurance only covers you for a fixed period (for example, 10, 20 or 30 years, or up to a set age like 70). Whole of life policies are usually more expensive and may include a savings element, whereas term life policies are cheaper and provide pure protection without savings.
What is the savings element?
Some whole of life policies include a savings element, where part of your premium is invested in a fund managed by the insurer. Over time, this can build up a cash value that you may be able to withdraw or borrow against. However, it’s not guaranteed and withdrawing funds can reduce your death benefit. These policies are designed for life cover, not as a savings plan. You shouldn’t rely on the savings element for long-term investment goals – its main purpose is to support your life cover, not to grow wealth.
How does a whole of life policy work?
Whole of life policies are designed to provide a lump sum (death benefit) to your family or estate when you die. These policies also have a savings element that can generate a cash value over time. The cash value may be withdrawn under certain conditions but may need to be repaid if you want to maintain the original death benefit.
What types of whole of life insurance are available?
Guaranteed whole of life:
- Premium is fixed and benefit is set at an agreed level
- Payments do not change unless linked to inflation
- If linked to inflation, both payments and the lump sum increase each year
Unit-linked policies:
- Your premium is invested in a fund managed by the insurer
- Fund value is not guaranteed and may not cover your life insurance for your whole life
- You may need to pay a higher premium to keep the sum assured at the agreed level
- Policies are reviewed regularly – typically after ten years, then every five years and yearly after a certain age
Section 72 policy:
- Used to pay inheritance tax when you die
- Suitable if your estate is large or your dependants cannot pay inheritance tax
- The sum insured does not form part of your estate unless it exceeds the tax liability
What types of cover can you choose?
Dual cover: Covers you and your spouse/partner. Pays a lump sum for each death. The policy continues after the first death and ends after the second
How long does the policy last?
You can pay premiums up to your death or for a specified time (e.g. until age 65).
For unit-linked policies, premiums are reviewed and may increase after ten years, then every five years, and yearly after a certain age. If premiums increase and you cannot afford them, you may have to accept reduced benefits.
Section 72 policies are not subject to review, so premiums remain the same, but these policies are more expensive.
What affects the cost of whole of life insurance?
Costs depend on:
• Your age
• Your health
• Your lifestyle (including smoking status)
• The amount of cover you choose
• The value of assets for inheritance tax (section 72 policy)
What information must you provide when applying?
The insurer must ask relevant questions in plain language. You must answer all questions fully and honestly. If you do not, your policy may not be valid and you may be unable to make a claim.
Where can you buy whole of life insurance?
What charges apply to whole of life policies?
Whole of life policies have ongoing charges, such as yearly charges for managing the investment fund and monthly charges for handling your premium. Ask your provider for a full list of charges.
What happens if you stop paying premiums?
If you stop paying premiums, the policy may not lapse immediately, unlike a life insurance policy. The insurer may continue to take charges from your fund until it has no value, at which point the policy and cover will be cancelled.
How do you make a life insurance claim?
- Contact the deceased person’s insurer or broker (or employer if it is an employee benefits package) to find out what paperwork is required.
- Find out what you are entitled to – review credit card and bank statements, contact lenders and the deceased person’s employer for details of any additional cover.
- Get your paperwork in order – you will need the policy documents and a copy of the death certificate.
