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Whole-Of-Life Insurance

What Is Whole of Life Insurance?

Let's start by looking at what whole of life insurance is and what it isn't. Most of us start looking at buying a life insurance policy because we want to provide for our loved ones after we're gone. It's especially important if you are a major contributor or sole earner and want to ensure that your family receives the funds necessary to maintain their living costs, like school fees or mortgage payments.

Whole of life insurance policies pay out a guaranteed lump sum after your passing. Whole of life insurance is different to other forms of life insurance because the same amount is paid out, regardless of how much time has passed. This makes whole of life insurance slightly more costly but guarantees that your nominated beneficiaries will receive the agreed payout, no matter how long you live after the policy is taken out.

This article will explore what whole of life insurance means, who it's best suited for, and how it works in greater detail.

Like with any other life cover, whole of life insurance requires monthly or annual premiums to be paid. In the event of your passing, your insurance provider will make a lump sum payment in cash to your beneficiaries, no matter when your death actually occurs. This is the unique feature that whole of life insurance has over level term or decreasing term insurance policies. A term life insurance policy is set for a specific, fixed period, e.g. 25 years. Like whole life insurance, you will pay premiums as long as the cover lasts. A lump sum payout is only made in the event of your death. Once the policy ends after the set period concludes, there's no cash payout, and if you want to continue cover, you'll need to take out a new term life insurance policy.

Different Types

Whole of life insurance can fall into one of two categories, balanced cover or maximum cover. Choosing the right cover depends on the benefits you would like to receive from your life plan.

  • Balanced cover

  • Maximum cover

Balanced cover means that the premiums you pay stay the same as long as your cover lasts, even as you age or if you should become terminally ill. In other words, your monthly payments are guaranteed. Your insurer will pay your loved ones a fixed amount in the event of your passing.

How Does Whole Of Life Insurance Work?

With whole of life insurance, you pay annual or monthly premiums in exchange for a payout known as a death benefit. Some life insurance policies (called universal life policies) allow you to apportion some cash value to your loved ones in addition to the death benefit.

It's important to keep up with these payments according to the terms throughout your lifetime or the fixed term or specific period stipulated in your insurance policy.

How much cover do I need?

The amount of life insurance cover you need depends on your personal circumstances. If you have no children, no spouse or partner, and no debt, you may not need a huge payout and would rather focus on covering funeral costs and other debts. If you already have insurance through your place of work (e.g. a death-in-service insurance), it could be sufficient cover for you, especially if you are child-free, single and have no debts.

Before deciding on the whole of life cover amount you'll need, look at factors including:

  • the amount of mortgage you still owe;

  • any other debt you have that your loved ones may want to pay off;

  • your family's financial security and stability;

  • the number of people you want to protect financially after your passing;

  • the cost of funeral expenses;

  • the size of the nest egg you may want to leave for your loved ones.

You want your eventual payout to provide financial protection and stability after you're gone and that your life insurance covers the most pressing expenses for your family.

Is a Whole of Life insurance payout tax-free?

Whole of life insurance payouts aren't exactly tax-free in the UK. A whole of life insurance policy isn't subject to capital gains tax or income tax, but if your estate is worth over £325,000, there is an inheritance tax bill charged at 40% for any assets over the threshold. This can have a big impact on the lump sum payout your loved ones will receive. If you don't want your beneficiaries to pay inheritance tax, you can write your policy into a trust. It's important to speak to an advisor about your goals before making a decision.

Can I get Whole of Life insurance if I'm over a certain age?

While you can take out cover at any stage of your life, remember that you tend to pay more for your premiums the older you are. Your life insurance cost can go up dramatically if you are over the age of 50, but you can still find a good life policy if you work with the right broker. 

Can I cash in my Whole of Life insurance policy during my lifetime?

Whether or not you can cash in your whole of life cover early depends entirely on your individual policy, so it's important to check the terms and conditions of your cover. Some policies allow you to take out a cash payout, but the surrender value may be significantly less than the amount you've paid in premiums over the years. There may also be additional charges to contend with, including exit penalties or administrative fees. Others may not permit cashing out early at all, so make sure that you study your policy carefully before entering into an agreement.

Is it possible to have a joint policy with someone else?

You can take out a joint whole of life insurance policy with a partner or friend, but your life cover will only pay out half when the first person passes away. The other half will be paid when the second person passes away. A joint whole life insurance policy is usually cheaper, but it can affect the surviving partner's ability to take out another policy later in life. You should also consider what will happen to the life policy if you and your partner separate or fall out as it may not be transferable or separable.

Pension Plan vs Life Insurance Plan

Some policyholders are less concerned about leaving behind funds for their family when they pass away but want a steady source of income while they are still living. In that case, a pension fund is a good option. Pension funds are long-term savings plans that allow you to set aside funds for your retirement. You can take out your pension from age 55 and 25% can be taken out as a cash sum.

Health Insurance vs Life Insurance

If you are concerned about paying for treatment if you start suffering from ill health, you may want to consider acquiring health insurance. Health insurance covers your treatment costs (such as urgent surgery or a private hospital stay), whereas life insurance provides for your family if you pass away during the policy term. Depending on your lifestyle and personal circumstances, it’s a good idea to have both life and health insurance. 

life insurance policy pays income protection insurance

What does Whole of Life insurance cost?

The cost of whole life insurance varies according to the level of risk associated with your age, height, weight, job type and habits. The main factor when it comes to your premium is the type and amount of cover you select. According to Unbiased.co.uk, the industry average for monthly premiums are around £40.68 for thirty-year-olds, all the way up to £106.28 for those over the age of fifty, but it really depends on your individual risk profile and personal circumstances.

How Is Whole Of Life Insurance Paid Out?

As soon as the whole life insurance policyholder passes away, the beneficiary should get in touch with the insurance provider. They will need to have the necessary documentation ready to support their claim(s) and receive the money from the cash payout.

The procedure is fairly easy and follows three steps:

Step 1: Notification of claim(s)

The beneficiary lets the insurer know that the policyholder has passed away and submits the policy number, personal information, details of their relationship with the policyholder and the contact details of the insured person's physician to the insurer.

Step 2: Assessment of the claim

The insurer provides a claim form for the beneficiary to complete, along with any relevant requests for additional information, including the death certificate.

Step 3: Payment

Whole of life insurance is best for policyholders with families or other dependents they would like to provide for after their death, for policyholders that want to leave a form of inheritance behind, or for policyholders that want to cover the cost of their funeral. If you're of an advanced age and have cleared your mortgage, and don't have any dependents, you may prefer to stick to a term life insurance policy or similar. Always speak to your broker before making a decision about whole of life cover or any other policy.

whole life policy small print

Who is it best suited for?

Whole of life insurance is best for policyholders with families or other dependents they would like to provide for after their death, for policyholders that want to leave a form of inheritance behind, or for policyholders that want to cover the cost of their funeral. If you're of an advanced age and have cleared your mortgage, and don't have any dependents, you may prefer to stick to a term life insurance policy or similar. Always speak to your broker before making a decision about whole of life cover or any other policy.


Whole of life insurance is a great way of ensuring that your family are looked after when you are gone. Whole of life cover provides the money your beneficiaries will need to pay the mortgage, cover your funeral expenses or just ensure that they can make ends meet. You will have peace of mind that your loved ones will be provided for in the event of your death. Speak to your broker or financial adviser if you are interested in whole of life cover today.

financial commitments life insurance pays inheritance tax

Whole-Of-Life FAQs

What does whole of life insurance mean?

Whole of life cover is a life policy that provides your family or friends with a lump sum cash amount in the event of your death, no matter how long you live after acquiring the policy.

What are the disadvantages of whole life insurance?

Unless the policy is written into a trust, inheritance tax does apply to whole of life insurance if the total estate is above a certain threshold. Whole of life insurance is also more expensive than other forms of insurance.

Are whole of life policies worth it?

Most people who choose whole of life insurance are attracted by the guaranteed pay-out, which ensures that your loved ones receive a fixed amount in the event of your passing. You can also opt for whole of life insurance options that have an investment or form of equity called life assurance attached to it as a separate benefit. Is whole of life insurance worth it? It depends entirely on your goals, so speak to your insurance advisor about the options.

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