Whole of Life Insurance: Everything You Need to Know

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By Crispin O'Toole-Bateman

on Thursday 20 June 2019

Older couple walking their dog

What is whole of life cover?

Many life insurance policies come with a time limit, called the ‘term’, which states when the cover will end. Often, it is set to a certain point in your life – this could be retirement age, the time when your youngest child leaves home, or the day your mortgage is finally paid off. Whole of life insurance breaks this trend by having no end date – it provides you with financial cover for the whole of your life.

How does a whole of life policy work?

Insurance is about providing you with a financial settlement in the event that something unwanted happens. You insure your possessions against damage or theft, your car against an accident and your home against destruction. Life insurance is about providing a financial security blanket for your family in the unwanted event of your death.

Insurance vs. assurance

Standard insurance can be seen as a gamble taken on by the insurance company. They receive a monthly premium from you in return for the promise that they will financially cover the situation if whatever is insured against occurs.

They are hoping (just as you are), that the situation never comes up and the length of insurance runs its course peacefully. When it does, they have won the gamble and it has given them many months of regular income without a payout, but when the insured-against situation does happen, they lose, having to pay out a substantial amount that is usually more than the money they’ve had paid in.

Across the many things they insure, this gamble pays off – more insurance terms end not being called upon than those that result in a payout.

Term-based life insurance follows this principle. With its end date, living beyond your term insurance policy means you have paid into the policy for years and never called upon it.

Whole of Life (WoL) policies always require a payout – there’s no gamble, merely the knowledge that one day the policyholder will pass away, and the money will be called upon. In this way, it is less a case of insurance, and more correctly termed assurance: you are assured that the money will one day be paid out.

The cost of whole of life assurance

It makes no sense for an insurance company to provide assurance that will end up financially damaging to them every time. To mitigate this certainty, they gamble instead on the length of time between the start of policy and your eventual passing.

If they believe you will live for fifty more years, they want to make sure the sum assured (the amount that the policy is set to pay out), will have been collected in full before 35 or 40 years have passed. If they think you only have twenty years remaining, they will want the value paid in within fifteen years.

Using some simple maths as an example, this means if you have a whole of life policy covering you for £30,000 and you start it when you are 35 years old and healthy, your premiums will be calculated such that the insurance company have be paid £30,000 by the time you are around 75 years old. You will therefore find your premiums set to something around £62.50 per month, totalling £750 per year, or £30,000 over 40 years.

If you unfortunately die before turning 75, then your insurer is out of pocket, paying out the £30,000 to your family and having only taken in a portion of that, but if you survive to 80, they will be comfortably in profit, with five years of premiums having been paid above the sum assured threshold.

Of course, nothing is quite that simple. With the money being used to invest on behalf of the insurer, and accounting for inflation, the actual figures will differ wildly from the over-simplified example given here – but it provides a basis for understanding.

Whole of life insurance vs. savings – is whole of life insurance worth it?

One argument against whole of life insurance is that it is better in the long term for you to invest the same money into savings rather than potentially giving it away to a life insurance company.

Life insurance gives you security for the length of the term in exchange for the loss of a potential pot of savings in later life – if you die early into your savings scheme, the money available to your family will be tiny compared to an equivalent whole of life policy, but if you survive to old age, a savings account will grow and even be available for you should you need it.

The benefits of whole life insurance are easy to understand here with a simple example – we will use the same figures from our previous example: a whole of life insurance policy for £30,000 cover costing £62.50 per month:

Age

Years since start

Life insurance payout

Savings payout

Best choice

36

1

£30,000

£750

WoL insurance

40

5

£30,000

£3,750

WoL insurance

50

15

£30,000

£11,250

WoL insurance

60

25

£30,000

£18,750

WoL insurance

70

35

£30,000

£26,250

WoL insurance

75

40

£30,000

£30,000

Either

80

45

£30,000

£33,750

Savings

90

55

£30,000

£41,250

Savings

 

The chart shows clearly that for most of your life, a Whole of Life insurance policy simply provides a better return – not only that, but it gives you security for your family from the beginning. It’s tragic to consider but imagine dying in the first five years of the policy - £3,750 from a savings account is hardly comparable to the £30,000 life cover would provide.

Which is better – term or whole of life insurance?

The other rival for consideration is term life insurance - is it better? And what are the pros and cons of whole of life insurance?

The truth is that both term and whole of life insurances are there for different purposes and getting the right insurance for your needs is very important.

Term policies can look like cheap life insurance when compared to equivalent levels of whole of life cover. This is because, as explained above, term cover is insurance where whole of life represents assurance. As ‘term’ represents more of a gamble on the part of the life insurance company, they are able to offer impressive rates and low premiums for often eye-watering levels of cover.

The downside of term life insurance is that one day the policy simply finishes and everything you have paid into it is gone forever.

Term life insurance is great for covering you during your working life. While you are a main breadwinner and supporting a family, it is crucial that you have life insurance that can keep your family afloat and comfortable if you pass away.

Often, there is a mortgage that must be paid, education expenses to consider, substantial bills and daily life outgoings that will go on for years before the children are grown enough to provide for themselves - not to mention the sheer shock and grieving that is made considerably worse when financial pressures are laid on top of the emotional upset.

Term life insurance is perfectly placed to provide a high level of financial security during these family years; but once you retire, the mortgage is paid and the children are flown, there simply isn’t the need for cover of that size.

What is needed is a level of protection that endures indefinitely. Move over term insurance - make way for whole of life.

When to get whole of life cover

Given the explanation above, it seems as if whole of life cover is best ignored until you are older – it’s true that whole life insurance quotes for seniors are among the largest percentage of queries, however, that thinking is somewhat flawed.

One of the quirks of life insurance is that the cost of your premiums is set upon application and is based on your age and health. If you apply for life insurance fresh out of college, a non-smoking fan of the gym, then the cost of your premiums is going to be low compared to an ageing beer fan with a 40-a-day habit he just can’t give up.

This is even more relevant with whole of life insurance where the spread of years greatly affects the monthly outgoing.

Waiting until retirement can make whole of life cover more expensive than it needs to be – plus, it means you have gone many years without the security of the insurance! It is far more sensible to take out a whole of life policy as soon as you can and enjoy more years of cover for no real downside.

Over 50s – the variant whole of life insurance in the UK explained

One subsection of whole of life cover is over 50s life insurance.

It can be true that if you have suffered a medical condition during your life, or if you are currently in treatment for something, that life insurance is difficult to obtain. In fact, you may find yourself simply declined insurance by many providers.

Over 50s insurance is a guaranteed acceptance policy available for those aged 50 or more. It is a whole of life policy perfect for smaller expenses, such as ensuring you have money put aside to cover the cost of your funeral. The premiums are a little higher than standard whole of life insurance, but there are no medical questions to answer and no one is turned away.

If you have reached a point in your life where you want to provide for your funeral or leave a little behind but worry that the invasiveness of medical questioning and your pre-existing conditions will prevent you from doing so, then over 50s insurance is the whole of life alternative for you.

Unite Life – providing life insurance comparison and the best life insurance quotes for you

At Unite Life, we work with a huge range of top UK life insurance providers to get our customers the best life insurance possible.

Our expert advisors will listen to your specific circumstances to help you determine the perfect policy to suit you – whether that’s whole of life insurance or otherwise. As independent registered financial specialists, we can give you an unbiased overview and work with you to find the level of cover that makes most sense for you.

Give us a call today or fill out our 20-second contact form to get yourself covered and feel the relief of financial security.

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