Whole-of-Life Insurance

If you want a life insurance policy that will be with you through thick and thin, whole-of-life insurance could be what you need. Here, we’ll explain all the details you should know about the pros and cons of whole-of-life cover, along with where to get the best quotes, and typical costs for policies in the UK.

What is whole-of-life insurance?

Whole-of-life insurance refers to policies designed to cover you throughout life, and pay out if the worst were to happen. Because you’ll have the policy your whole life, by definition, it means you’re guaranteed a payout to your beneficiaries when you die. Some insurers may refer to it as ‘life assurance’, but it’s the same thing.

How does it work?

After setting up your policy, you must pay monthly (sometimes annual) premiums to maintain the cover. At some stage, when you pass away, the insurer will pay out a lump sum (the sum assured) to your beneficiaries - which could be your family, children, spouse, or anyone else you choose.

The premiums are a standard cost you might be familiar with from other types of insurance. The key difference with whole-of-life insurance is that you’ll pay this cost on an ongoing basis for the rest of your life (in most cases). You’ll usually need to pick reviewable or guaranteed premiums.

The exact premium and payout structure can depend on your policy, but insurers often invest your premiums over time. This can lead to a larger payout from the policy down the line, but there are added complexities and considerations to be aware of.

Types of whole-of-life insurance policies

Although whole-of-life insurance policies all work in a fairly similar way, there are some slight differences in the cover available and how the policies are structured. Here’s a quick explanation of the two main types of whole-of-life insurance policies you’ll come across:

Flexible whole-of-life policies

If your policy is ‘unit-linked’ (meaning the sum assured depends on the value of underlying investment units, usually with a minimum guarantee), it’s typically called a ‘flexible whole-of-life policy’. The ‘flexible’ refers to the policy structure - offering a mix of life cover and investments, where your premiums buy ‘units’ in a fund.

It might sound slightly complex, but this investment element using units allows you to choose the level of benefits you want. For higher levels of cover, you cash more units. Or, if lower levels of cover are needed, you can leave more units attached to the policy (which can allow the investment aspect to grow).

These policies are often structured in one of three ways:

• Minimum cover: The lowest level of life cover is maintained, and the number of units attached to the policy can build up into a larger investment pot, potentially for a larger payout.

• Balanced cover: With balanced (or standard) whole-of-life insurance, your premiums stay the same at an amount you can expect to maintain throughout your life, with a fixed cash payout on death.

• Maximum cover: The highest level of cover, but it requires the most units to maintain. More of your premium goes towards the cover instead of investments and the policy is usually reviewed after 10 years. If the investments aren’t enough to sustain the cover, you’d have to pay increased premiums, which will be further reviewed every 5 years.

Universal whole-of-life assurance

With these policies, you get the flexibility of unit-linked whole-of-life insurance, but you can add a range of other benefits like:

• The option to take income

• Adding another person to the policy

• Income protection and critical illness cover (CIC)

• Accidental death benefit and permanent disability cover

• Guaranteed insurability

• Indexation of benefits

• Flexibility of premium levels and waivers of premiums during specific periods

So, with a universal whole-of-life insurance policy, you get a good degree of control and flexibility. However, these added benefits and options usually come at a cost.

All types of whole-life insurance policies can provide unique financial planning opportunities. They can be an excellent tool for wealth-building and estate planning, with possible investment and tax benefits. However, it’s crucial to get expert advice.

Cost of whole-of-life insurance

The average monthly cost of whole-of-life insurance can vary widely depending on the type of policy you use, as well as other key factors such as your age, current health, smoking habits, the sum assured, and even your job.

To give you an idea about the average monthly cost, here are some rough figures based on different ages with £100,000 of cover:

If you smoke, a rule of thumb is that the monthly cost can be around 40% higher on average. Usually, the younger you are, the less impact it has and vice versa.

It’s best to have a chat with a life insurance expert to get an accurate quote with realistic costs. They can calculate a personalised quote rather than using a vague monthly average. Online whole-of-life insurance calculators aren’t very precise.

How to get a quote online

So many variables go into creating a whole-of-life insurance quote, and these details are difficult to capture online in a form. The most accurate way to get a quote within minutes is through an expert broker.

A broker can get all your details and find the best whole-of-life insurance policy with the lowest cost and proper coverage. It’s worth having a quick discussion with an expert advisor because they can arrange the right policy based on your individual lifestyle and family needs. Often, you can only buy these policies through an advisor.

If you want to have a free, no obligation initial chat with one of our experienced whole-of-life life insurance advisors you can get started here:

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How policies pay out

For whole-of-life insurance policies, you’re guaranteed a payout as long as you maintain your premiums. It’s also important you’ve told the truth on your application and the insurer has up-to-date information. Your advisor will run you through all the terms to ensure you know what causes of death the policy covers.

If you’re wondering what percentage of whole-of-life insurance policies actually pay out, the latest figures from industry bodies the Association of British Insurers (ABI) and Group Risk Development (GRiD) say that 99.98% of whole-of-life policy claims were paid.

The payout amount of a whole-of-life insurance policy can fluctuate based on underlying investments, so it’s essential to completely understand how your policy is structured. Also, some policies may stop taking premium payments from you once you reach 80, 85, or 90, but they will still pay out the sum assured when you die.

Surrender values

Another unique feature of whole-of-life insurance is that because insurers can use premiums to build up a sizeable reserve of cash and investments, these policies can sometimes offer ‘surrender values’.

If you want to end your policy before you die, you could get a portion of the sum assured paid out. However, this is generally small in relation to the total sum, especially in earlier years.

However, another useful alternative is the ability to take a loan out against the surrender value of the policy. This allows you to access funds without stopping the policy and losing protection. But, doing this can have tax implications.

Pros and cons of whole-of-life insurance

Here we have provided a rundown of the advantages and disadvantages of whole-of-life insurance to help you decide whether it’s the right type of protection for you.

Advantages

Here are some of the main benefits of whole-of-life insurance:

• Life cover: The ability to be covered for your entire life, regardless of when you die.

• Fixed costs: Fixed premiums can be arranged so you know exactly what you’ll be paying each month or year.

• Investment: The opportunity for investment-linked policies means the potential payout can grow over time and offer flexible options.

• Guaranteed payout: Policies are guaranteed to pay out at some stage if you meet the requirements.

• Surrender value: You can access funds before you die with some policies or even borrow against the value for some financial flexibility.

• Tax planning: If used correctly, these policies can be an excellent tool for estate planning.

Disadvantages

Here are some of the main drawbacks to consider:

• Complexity: These are complex financial products requiring expert advice and guidance.

• Costs: The premiums can be fairly expensive and depend on personal factors and age.

• Variables: Price can be impacted by health, lifestyle, where you live, whether you smoke, your occupation, and other things.

• Advisor access: In most cases, you’ll need to purchase these policies through an insurance advisor or broker.

• Premiums: After periodic reviews with some policies, the premiums can increase, particularly if the underlying investment fund underperforms.

• Tax implications: If the policy isn't structured and used correctly, it can have tax implications for you or your beneficiaries.

Best whole-of-life insurance providers

Unfortunately, there’s no single best whole-of-life insurance policy out there. It’s all about finding the right insurer and policy for your circumstances and needs.

To give you a few examples, here are a few popular whole-of-life insurance providers in the UK:

• Vitality: Although costs can be competitive, Vitality policies sometimes offer lower levels of cover in terms of the sum assured and the benefits included.

• Royal London: Royal London policies usually offer comprehensive coverage, but the prices and fees can be higher than some options.

• Legal & General: Life assurance from Legal & General can be placed in a trust to help with inheritance tax planning. There are no claims cut-off periods, but costs can vary significantly.

Why choose Teito for your life insurance needs?

Finding the right whole-of-life insurance policy isn’t as simple as other forms of insurance. These policies usually need to be purchased through an advisor, and as you might end up keeping this policy for life - you want to be sure you can rely on it when your family needs it most.

Our expert advisors can assess your circumstances and help you find the best whole-of-life insurance policy tailored to your situation. They can get you deals not advertised elsewhere, and are there to answer your questions and queries.

Here are some more of the reasons people choose us to find them the best whole-of-life insurance policy:

• We can get you tailored quotes in minutes

• Our advisors have 5-star ratings on leading review sites

• Your first chat is free, with no obligation to proceed

• Access to exclusive life insurance deals

Ready to take advantage of a free, no-obligation chat with an advisor who specialises in whole-of-life insurance policies? Get started here.