What is Whole of Life Insurance?
Whole of Life Insurance provides your loved ones with a lump sum payment when you dies so long as you have maintained your premiums.
It is often used to cover an inheritance tax liability, funeral costs or to pay off outstanding loans.
Opt for cover with guaranteed premiums so you can lock in the cost of the policy from the outset
99.9% of all whole of life insurance claims were paid out in 2016 –Association of British Insurers
Speak to our expert independent advisers or get an instant online quote to compare the UK’s leading insurers.
Do I Need Whole of Life Cover?
Term Insurance is usually more suitable for covering large debts with a set term, such as a mortgage.
Whole of Life Insurance policies are used for other purposes where a payout on death is required regardless of when it happens, such as:
- Covering funeral costs – an inevitable cost which most would rather cover than leave a bill for their loved ones during such a difficult time.
- Estate and inheritance tax planning – with the price of UK property many families now have sizeable potential IHT liabilities which are best covered to avoid a heft bill.
- Leaving small gifts to loved ones after your death and general family protection purposes in certain circumstances.
Term Insurance vs Whole of Life Insurance
- Term insurance ends after a set term, e.g. 25 years. As the name suggests, Whole Life Insurance covers you until you die (providing you keep paying the premiums and stick to the policy terms).
- As payouts are guaranteed with Whole of Life Assurance, it tends to be more expensive than Term Insurance.
- You have a number of options for term insurance payouts, such as decreasing cover, level cover or Family Income Benefit.
- For Whole of Life cover, the most common option sees the payout remain fixed for the policy’s life, although indexed increasing policies are available.
- Both types of life insurance have the option of guaranteed premiums to ensure the cost of your plan is fixed for its duration.
Taxation of Whole of Life Cover
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.
Writing Whole of Life Cover into Trust
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.
How Much Does Whole of Life Insurance Cost?
- 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.
- For over-50s cover, a subset of Whole of Life Insurance, many companies offer guaranteed acceptance under a certain age, such as 80, without the need for a medical.
- Guaranteed over-50s plans don’t tend to be linked to the policyholder’s health as Term Insurance tends which can make them more expensive as there is more unknown risk for the insurer.
What is Whole of Life Insurance?
Whole of Life Insurance is a form of Life Insurance with a guaranteed payout after your death, whenever that might be, providing you continue paying the premiums and don’t otherwise breach the terms of the policy.
Whole of life is also known as Permanent Life Insurance, because you pay premiums for the rest of your life and in exchange are covered right up until your death.
This is compared to Term 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.
Should I Get Whole of Life 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, then Whole of Life cover might be right for you.
Whole of Life Insurance or Term Insurance?
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.
Whole of Life Assurance policy the risk insured is ‘assured’ (i.e. will definitely) happen, with the risk being the policyholder’s eventual death.
Similarly, given the number of policies which are taken out to cover funeral costs the payouts on Whole of Life Insurance policies are usually lower than for Term Insurance.
In 2017, the ABI revealed the average Whole of Life policy paid out £4,511.16, compared to £78,323.35 for Term Life Insurance policies.
Which is best for me?
Each type of life cover is typically designed to protect very different liabilities.
- If you have a liability which is being paid off over time or has a finite shelf life such as a mortgage, car loan etc., then Term Life Insurance is probably a better option.
- If there is a liability which will arise on death regardless of the timeframe such as funeral costs or an inheritance tax bill, Whole Life Insurance is usually the more suitable option.
Funeral Insurance and Covering Small Debts
One of the most common uses for Whole of Life Cover is to provide Funeral Insurance. This ensures a small 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 minimal legacy to family or cover small 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.
So if you don’t have a mortgage but have smaller debts, such credit cards, which you don’t want deducted from your estate after you die, a Whole of Life policy may be suitable for you.
Inheritance Tax Insurance
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 down the generations 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. This can be done using our free Inheritance Tax Calculator. Once you have a figure, you can set about comparing Whole of Life Insurance quotes.
Pensions & Investments Expert at Drewberry
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.
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.
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.
Gifts Inter Vivos Insurance
Gifts you give away while you’re alive are known as gifts inter vivos, but if you die within 7 years – and potentially up to 14 years – of giving those gifts, inheritance tax is typically due on such gifts.
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.
Rauri was easy to talk to. Explained everything really well. Took prompt action when requested and was in touch when he said he would be without being pushy.
How Much Does Whole of Life Insurance Cost?
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).
As such, premiums are generally costlier which leads people to often insure lower amounts with Whole of Life Cover, often just to protect against funeral costs and to cover small debts.
However, where the policy is being used to cover an inheritance tax liability, the sum assured could be worth tens or even hundreds of thousands of pounds. It is usually this sum assured that will impact on the cost of Whole of Life Cover the most.
Beware Reviewable Permanent Life Insurance Premiums!
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. We never recommend such policies as it could result in 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:
- Investment performance
- Reinsurer fees
- The level of future claims the insurer expects to pay
- The insurer’s own expenses and taxes
- The insurer’s need to hold a capital buffer/financial reserves.
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.
Guaranteed Permanent Life Insurance premiums stay fixed over time, although will naturally rise if you want to increase the benefit or you’ve chosen to index-link the payout so it maintains pace with inflation. However, the inflationary increase will be set out clearly, so you’ll know exactly by how much your premiums will rise each year.
Pensions & Investments Expert at Drewberry
Will I Need a Medical for Whole of Life Insurance?
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.
Age Limit on Whole Life Insurance
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.
Can I Cash in Whole of Life Assurance?
No, you can’t cash in your Whole of Life Assurance policy. Your Life Insurance cash in value at any time will be zero. You’re free to cancel your policy if you see fit, but if you do you’ll lose the premiums you’ve paid and won’t get anything back.
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Compare Best UK Whole of Life Insurance Providers
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.
Increase your Canada Life Whole of Life Insurance 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 Whole of Life Insurance 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 of 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 Whole of Life providers where its included as standard.
Whole of Life Insurance Calculator
Use our Whole of Life Insurance Quote tool below 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.
Inheritance Tax Insurance Calculator
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 Drewberry’s 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.
Wealth & Investments Expert at Drewberry
Gifts Inter Vivos Insurance Calculator
Strictly speaking, a Gifts Inter Vivos Insurance policy isn’t Whole of Life Insurance. Rather it’s a set of term policies to cover the decreasing inheritance tax liability the majority of gifts you make while you’re alive to individuals face over a 7 year period.
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 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
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 – the team at Drewberry is available on 02084327333.
Pensions & Investments Expert at Drewberry
Expert Whole of Life Insurance Advice
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’d always recommend getting advice when buying cover, as it can help you get the best policy for you. We’re just on the other end of the phone, so please don’t hesitate to contact us on 02084327333.
Director at Drewberry