Whole of Life Insurance

According to the Financial Conduct Authority (FCA), whole of Life insurance refers to a type of life insurance that guarantees your loved one’s will receive a tax-free lump sum payment from your insurance provider. This type of life insurance differs from term life insurance, which guarantees a payout if you meet the requirements of the insurance policy upon your passing.

Deciding on which full life insurance policy is most suitable for your circumstance can be a daunting prospect, so we hope this guide will inform and advise you about whole of life cover and its potential benefits for you.

In this article, we answer several important questions you might have about whole of life insurance, covering main topics such as:

  •         What is whole of life insurance? – We provide a definition of the policy and its terms
  •         What is the cost of whole of life insurance? – We assess the financial costs of the policy
  •         What are the benefits and disadvantages of whole of life insurance? – We weigh up the policies pros and cons
  •         How to calculate the cash value of your whole of life insurance policy – We provide information on gaining a valuation of your assets
  •         Is whole of life insurance guaranteed to payout? – We look at your loved one’s financial gains after your passing
  •         Can I get a joint whole of life insurance policy? – We explain whether you and your spouse can take out this policy
  •         Can I use a whole of life policy for inheritance tax planning? – We provide information about using the policy to avoid inheritance tax
  •         Where can I get a whole of life insurance quote?

What is whole of life insurance?

Rather than paying out within a specific time frame and only if certain policy requirements have been met, whole of life assurance guarantees that your insurance provider will pay-out a lump sum to your loved ones regardless of the circumstance.

This insurance assures that the policy will pay-out upon your passing, removing any doubt that may come with a term life insurance.

This Youtube video provides a simple description of how Whole Life insurance works.

There are two main types of whole of life cover, these are:

Balanced cover: also known as standard cover, this type of policy means your premium is set by a provider at a sum deemed high enough to remain at the same value for the length of your policy. Upon signing up for the policy, you will agree on a fixed pay-out.


Maximum cover: this policy often has lower up-front costs, since most of your payment goes on your policy rather than being invested. Your premium may be increased by your provider upon review, should they deem you to be more of a risk.

However, you should be cautious and plan carefully when looking at life insurance policies, as this BBC article points out.

What is the cost of whole of life insurance?

In comparison to other forms of life cover such as term life insurance or family income benefit insurance, full life insurance is typically more expensive. This is simply because it is inevitable that the insurance provider has to pay-out a sum of money at some point.

As a result, you must ensure that you can afford the costs of your policy’s premium, both during your working life and after your retirement. Should you no longer be able to afford the associated costs of the premiums, your cover will be cancelled by the provider.

Despite this, most whole of life insurance policy providers will only demand payment of premiums up until a certain age, most typically this is 90 years old. However, this can vary between policy provider, so it is worth checking the terms and conditions of your agreement before committing to anything.

Ultimately, the total amount you will be charged for your whole of life insurance comes down to several factors about yourself, including the amount of cover you want, your age, lifestyle factors and your overall health.

Should you choose to end your whole of life insurance policy early, you may be subject to charges. These charges vary between insurance providers, so it is vital you understand the charges you may face before committing to ending your policy early. 

What are the benefits and disadvantages of whole of life insurance?

Below we have highlighted the benefits and drawbacks this form of insurance may have:

Advantages of a whole of life policy

  • You are covered until your passing, unlike term life insurance which only covers you for a set period, after which premiums only tend to increase drastically
  • The insurance premiums that you pay under the policy are invested in stocks of premium bonds, which can earn interest over the duration of your policy
  • Your monthly premiums are set for life without the potential for adjustment by your provider, unlike term life insurance policies which require renewal and are subject to adjustment
  • A portion of your life insurance payment will be placed in a saving account, to provide financial security in your retirement, which you can withdraw against the value of your savings

Disadvantages of a whole of life policy

  • You will pay higher monthly premiums than you would if you were covered by another insurance policy, these can sometimes be 5-10 times higher than the cost of term life insurance policies
  • There is a possibility that your investments will not grow in value at all, and you may have little choice over what your assets are invested in
  • Permanent coverage may put financial pressures on you since you must keep up with premium payments or risk losing your cover
  • Could be more complex than term-insurance policy and may require more research to understand its complexities

It is important to weigh up the potential advantages/ disadvantages depending on your situation. 

whole of life cover

How to calculate the cash value of your whole of life insurance policy

In addition to the accumulation of cash value, whole of life insurance also includes a death benefit, in comparison to term life which does not have a built-in cash value.

After accumulating a significant cash value, the funds gained can be used in several ways, including:

  •         To pay your policy premiums
  •         Withdraw cash through a loan at significantly lower rates than those offered by banks
  •         Invest the funds into stocks or bonds which can maintain and accumulate wealth through interest
  •         Provide a substantial income following your retirement

Cash value can accumulate in your whole of life assurance policy depending on your type of policy and your policy provider. It can also build up in your policy when your paid premium is divided into 3 separate pools, these are:

  • Death benefits, this value is based on your age, health and other lifestyle factors
  • Insurers costs and profits, covering any operating fees
  • Cash value, which is invested and is subject to earn interest and grow in value over time

There are 2 main options when deciding how your money is invested, these are:

  • Unit linked funds, where you may be able to choose between the different funds invested
  • With-profits funds, where you may gain returns linked to the stock market, without the potential fluctuations associated with direct investment in shares.

Early on in your policy agreement, a high percentage of your premium is allocated to cash value, though over time this allocation is decreased, in a similar way to how a home mortgage functions.

If you decide to surrender your life insurance policy, you are requesting to cancel your policy in exchange for any accumulated cash value. If you choose to do this, your insurance provider may incur fees, which are taken from the cash value of your policy before you receive payment.

Is whole of life insurance guaranteed to pay out?

Upon your passing, your estate and loved ones will receive a tax-free lump sum payment if you have paid the associated premiums, or you have surpassed the age at which premium payment stops.

There may be a required minimum payment following your death. For instance, if you have invested capital in unit linked funds or a whole of life policy, the minimum payment required will depend on the value of your invested unitised funds.

Can I get a joint whole of life insurance policy?

While a single life insurance policy will only cover one person and pay out upon that person’s passing, a joint whole of life insurance policy can cover two people’s lives. This may sound obvious, but joint coverage typically acts on a first death basis.

A first death basis means there is only a single pay-out upon the death of the first person in the joint policy. Following this, the policy would come to an end, meaning the surviving partner would, therefore, be without coverage under a joint policy.

As a result, depending on your circumstance, it may be more economically practical and secure to take out two single life policies in comparison to a joint life policy. This would ensure that, if your partner passed away, you would still receive a pay out from their policy, whilst still being covered by your own.

If you have close family who are depending on you financially, taking out a life insurance policy would not be the worst idea. Whether it be a single or joint policy that you take out, you should account for your current needs as well as preparing for the future.

Despite being in a relationship, this doesn’t mean you will have equal protection shortfalls. Therefore, the suitability of either joint or single life policies relies on how much you wish to protect and how long you wish to be protected for.

A joint life insurance policy would be more suitable if you each require a similar level of cover for the same amount of time. However, if you chose to take out a joint life insurance policy and one person requires greater protection than the other, one partner may be more/ less protected than the other.

In this instance, 2 single life policies may be more suitable, since you can consider the differences in each of your own circumstances rather than accounting for the both of you together.

Financially, a joint life insurance policy may be more economically viable, since you are both paying for the same amount of cover for the same amount of time. 

 whole life insurance policy

Can I use a whole of life policy to avoid an inheritance tax bill during my estate planning?

One of the most common concerns faced by the elderly is the potentially large inheritance tax bill faced by their loved ones upon their passing. One method to responsibly, and legally, reduce the inheritance tax bill is to take out a whole of life insurance cover policy.

This is one of the largest selling points of whole of life insurance. During estate planning, if your estate is worth more than £325,000, inheritance tax is charged at 40% on the value of your estate above your threshold, potentially leaving your loved ones in financial woe.

The pay-out for your whole of life insurance policy can provide the funds required to pay off the inheritance tax bill without your family having to take out loans or enter their own saving pot.

However, this is wholly dependent on the policy being written in trust. Generally, the money paid to your loved ones is not liable to taxation, allowing your family to gain the full cash value of your life insurance payment.

Trusts and Inheritance tax planning isn’t under regulation by the financial conduct authority. By writing in to trust you are entering a legal agreement, in which appointed trustees take control of certain assets. This ensures assets within the trust are passed down to named beneficiaries such as your children or partner, giving you more control over your assets while avoiding the taxman.

Therefore, by writing your policy in trust, your family won’t need to endure the probate process, your inheritance is not liable to taxation and your loved ones can receive the benefits without unnecessary emotional or financial pressures.

Where can I get a whole of life insurance quote?

If you wish to gain more information and advice regarding a whole of life insurance, you can contact us here at UK Care Guide, and we’ll be more than welcome to help you with any questions you may have.