Whole of Life Insurance is designed to protect you for the rest of your life, paying out a tax free cash lump sum whenever your death may occur providing you’ve kept up with the premiums.
Often known as Whole of Life Assurance because it protects against an event that’s ‘assured’ to happen, i.e. your eventual death, or Permanent Life Insurance.
This is compared to Term Life Insurance, which is Life Insurance that ends after a set term agreed between the insurer and the insured. Term Insurance, particularly Decreasing Term Insurance, is therefore often used to cover a debt with a fixed term, such as a repayment mortgage.
As payouts are guaranteed with Whole of Life Assurance, it tends to be more expensive than Term Insurance.
Whether or not you need Whole of Life Assurance depends on your personal circumstances.
If you want a guaranteed lump sum to leave your loved ones after your death, or meet other obligations such as an inheritance tax bill, then Whole of Life cover might be right for you.
When comparing Term Insurance and Whole of Life Insurance, you’ll find that Whole of Life Assurance policies are generally more expensive than Term Insurance policies because the benefit is guaranteed.
Payouts also tend to be smaller with Whole of Life cover. The ABI revealed the average Whole of Life policy claim in 2017 totalled £4,511.16, compared to £78,323.35 for Term Life Insurance policies, although this isn’t always exclusively the case.
Each type of life cover is typically designed to protect very different liabilities.
Whether it be for funeral expenses or a potentially large Inheritance Tax liability there are a number of different uses for whole of life insurance which we have detailed below.
One of the most common uses for Whole of Life Cover is to provide Funeral Insurance.
This ensures a lump sum is paid out on your death to cover funeral expenses so your loved ones don’t have to worry about taking care of the cost or deducting it from their inheritance.
Over-50s Life Insurance plans are typically Whole of Life Cover used for funeral expenses, although some people may also use such policies to provide a small legacy to family or cover minor debts.
It’s worth considering that your estate is usually required to cover any debts held solely in your name after you die, providing there’s enough money contained in it to do so. (Note that the rules are different for debts/mortgages in joint names.)
Assuming you’ve left a solvent estate, debts are usually paid first and your beneficiaries only get the value of your estate net of any debt payments.
Some people use a Whole of Life Insurance policy to cover these small debts, although it’s worth noting that, over time, the premiums of such policies can rise to be worth more than the eventual benefit.
When looking at Life Cover it is often worth comparing a standard Life Insurance policy with one designed specifically for Over-50’s.
If you are in good health you may well be better off with a standard Life Insurance policy.
Independent Protection Expert
When an individual dies, inheritance tax is due on the value of their estate above a set threshold. It takes a 40% bite out of anything you want to pass on to the next generation above this limit.
Many families are facing an inheritance tax bill thanks to rising house prices, so it’s becoming increasingly common to use Whole of Life Assurance to cover these bills.
Where the estate has sufficient liquid funds to cover the inheritance tax bill, HMRC will usually grant the estate’s executor(s) access to settle the bill with a bank transfer from the deceased’s account(s).
However, these days most estates don’t have sufficient liquid funds available, commonly because a house makes up the bulk of the estate.
In such circumstances, executors and/or beneficiaries may have to pay out of their own pocket and attempt to recoup the money from the estate afterwards. Bank loans are also commonly available for beneficiaries in this situation.
Getting Whole of Life Cover to use as inheritance tax insurance firstly involves calculating how much inheritance tax you might have to pay.
Independent Protection Expert at Drewberry
Writing Whole of Life Insurance Cover into trust will ensure that not only will the payout be tax-free, but it can also provide your beneficiaries with a lump sum that’s outside your estate and therefore not tied up in probate.
When you use Whole of Life Insurance to cover an inheritance tax bill, it’s essential you write it into trust so it falls outside your estate when you pass away.
This money can be used to pay the taxman so your estate can be released to the beneficiaries. That way, they can inherit what you always meant them to have.
A Gifts Inter Vivos Insurance policy isn’t Whole of Life Insurance. Rather it’s a set of term Life Insurance policies to cover the inheritance tax liability on any large gifts you make whilst you are still alive.
When you make a gift to an individual, assuming you’ve made no other lifetime gifts or transfers previously, the gift only falls outside your estate if you live for 7 years – and potentially up to 14 years – after making it.
During that 7 year period, inheritance tax may be due on a sliding scale on the gift should you pass away during this time.
The below table provides the rate of inheritance tax due on potentially exempt transfers (PETs) you make during your lifetime over a 7 year period.
This covers most gifts to individuals and gifts into certain trusts (although the majority of gifts into trusts will be chargeable lifetime transfers [CLTs] and therefore have different rules).
Years Between Gift and Death
Inheritance Tax Due on Gift (%)
Less than 3 years
Whereas inheritance tax usually has to be paid out of the value of the estate, inheritance tax on gifts inter vivos must be paid by the recipient of your gift.
That means your gift could land someone with an inheritance tax bill several years after you’ve made it, when the money may already be gone.
The amount they would have to pay tapers down depending on how long you live after making the gift, so a set of decreasing term Life Insurance policies – known as Gifts Inter Vivos Insurance – could cover the potential inheritance tax liability on gifts you’ve made.
Setting up a series of interlinked policies over a 7 year period can be complicated, as can working out any potential inheritance tax liability on the gifts in the first place.
For this reason, we highly recommend speaking to an expert on the subject – please don’t hesitate to pop us a call on 02084327333 or email email@example.com.
Independent Protection Expert at Drewberry
Whole of Life Assurance tends to be more expensive than Term Insurance because the payout is guaranteed.
As with other types of insurance, Whole of Life cover costs more to buy the older you are when you take out the policy.
The cost of Whole of Life Insurance is typically more expensive than Term Insurance because there’s no term limit.
The risk to the insurer is assured, because as long as you keep paying the premiums and don’t otherwise violate the terms of the policy, there’ll be a definite payout at the end of the policy (i.e. when you pass away).
In the past, many Whole of Life Insurance policies were sold with reviewable premiums. This means the insurer is entitled to increase premiums to cover their increased costs over the life of your policy.
The cost of Whole of Life Insurance can jump significantly over time if you have reviewable premiums. If guaranteed premiums are available to you, we’d typically recommend choosing them over reviewable premiums to prevent your premiums becoming unaffordable and leaving you unable to maintain the level of protection you need.
Factors the insurer may use to increase reviewable premiums include:
These can all result in significantly increased premiums over the life of the policy at each policy anniversary date through no fault of your own.
Use our Whole of Life Insurance Quote tool to calculate Whole Life Cover premiums for your specific needs and circumstances.
As mentioned, this will largely depend on the sum you’re looking to insure, so you must first work out how much Whole of Life Insurance you need to buy.
If you’re using it to cover funeral costs or small non-mortgage debts, this should be fairly easy. Simply get a quote from a funeral director for your funeral expenses or calculate the amount of debt you have and set your Whole of Life Insurance policy to match this.
Calculating Permanent Life Insurance to cover an inheritance tax liability is tricker, because you have to try and estimate how much your estate will be worth when you die and therefore how much inheritance tax might be due.
A good first step is to use our free Inheritance Tax Calculator to add up all of your assets and calculate your potential inheritance tax liability.
Once you’ve worked that out, you’re in a better position to understand the sum you may want to insure to protect your loved ones on your death.
Your inheritance tax liability could rise, for instance as house prices increase or you yourself inherit assets.
For this reason, most Whole of Life Insurance providers allow you to increase your cover if the value of your estate rises or your liability grows thanks to changes in government legislation.
Financial Adviser at Drewberry
This depends on a number of factors, although a medical is more likely to be a requirement the more you’re looking to insure. If you do require a medical, poor health may increase the cost of insurance.
However, broadly speaking there’s often no medical for Whole of Life Insurance, especially when you’re looking to insure relatively small amounts.
Many providers, particularly those offering guaranteed over-50s plans, won’t even require you to take a telephone health questionnaire to get Whole of Life Cover.
Essentially, that’s because providers realise that they are insuring against an event that will definitely happen in the future, regardless of how healthy or unhealthy you are.
As such, premiums tend to be higher across the board to take account of the more lenient medical requirements to obtain cover.
The maximum age for Whole of Life Insurance varies depending on insurer. The age limits on Whole of Life cover are generally higher than for Term Insurance, with it being possible to find cover in your 70s and even 80s.
This is why the policies are so attractive for older individuals looking to use Life Assurance as part of their estate planning.
Without proper estate planning, the payout from any Life Insurance policy becomes part of your estate when you die.
HMRC usually charges inheritance tax at 40% on the proportion of an estate that rises above a set threshold. This will include your Life Insurance payout, potentially reducing it to less than the figure you initially required.
To avoid an inheritance tax charge on the payout, it’s recommended you write a Whole of Life Assurance policy into a trust for your loved ones, so it never becomes part of your estate and subject to taxation.
Paying Whole of Life Cover into trust can also leave your family with ready cash to pay any inheritance tax liability your estate might attract after your death.
Providing you meet Aegon’s eligibility criteria, you’ll automatically be offered £1 million of free Whole of Life Cover for up to 90 days while your policy is processed.
AIG’s Whole of Life Insurance includes access to the company’s Best Doctors service, a second medical opinion service to help you get the right treatment and care.
You are able to increase your benefit by up to £250,000 if the value of your estate increases or the UK government makes changes to the UK inheritance tax legislation that means you may face an increased bill.
Providing you’re under the age of 70, you can increase your cover by the lower of £200,000 or half the sum assured if you face an inheritance tax increase due to a larger estate or changes in government legislation.
Scottish Widows’ Whole of Life Insurance doesn’t include a terminal illness benefit.
However, Scottish Widows does have one of the largest permitted increases in cover if you see your inheritance tax liability rise – you can increase it by the lower of £500,000, 50% of the sum assured or the increase in potential inheritance tax liability on the estate.
Vitality’s policy comes with the same unique features as other VitalityLife products, including the ability to add options to your plan that could see reduced premiums as a result of healthy living or allow you to build up points towards various lifestyle rewards, such as fitness trackers or free cinema tickets.
Zurich’s Whole Life Cover includes a terminal illness benefit as standard, although if you want to include waiver of premium this is an optional extra, unlike some other providers where its included as standard.
As independent Life Insurance advisers, we’re on hand to answer any questions and provide guidance to ensure you can make an informed decision when considering Life Insurance.
If you’re looking for Whole of Life cover as part of estate and inheritance tax planning, the expertise of our advisers could be invaluable in helping you and your beneficiaries mitigate any potential liability.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
We’d always recommend getting advice when buying cover particularly when it comes to inheritance tax planning as mistakes can be very costly.
We’re just on the other end of the phone, so please don’t hesitate to contact us on 02084327333.
Director at Drewberry
I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.