Whole of Life Insurance
Written by Check Financial · 3 min read
The short answer
Whole of life insurance pays a lump sum whenever you die, as long as you keep paying the premiums. There is no end date, so it is often used to leave an inheritance or help pay an inheritance tax bill.
Who It's For
Whole of life suits people who want cover that is certain to pay out, rather than cover for a set number of years. It is often worth considering when:
- Your estate may face an inheritance tax bill, and you want your family to have money to pay it.
- You want to leave a set amount to your children or grandchildren.
- You want to cover funeral costs or other final expenses.
- You have a dependant who will need financial support for life.
How It Works
- You choose the amount of cover.
- You pay premiums, usually monthly. On many policies you pay for life; on some, premiums stop at a set age while the cover continues.
- Premiums are either guaranteed or reviewable. Guaranteed premiums stay the same for life. Reviewable premiums are checked at set points and can rise, or the cover can be reduced instead.
- When you die, the insurer pays the lump sum, whenever that is.
Most whole of life policies today are pure protection: they have no cash-in value, and if you stop paying, the cover ends.
How Much Cover, What It Costs and Tax
How much cover. For inheritance tax planning, this usually starts from an estimate of the likely tax bill, which should be worked out with your solicitor or tax adviser. For other needs, it's the amount you want to leave or the costs you want covered.
What it costs. Because the policy is certain to pay out, it costs more than term insurance for the same amount. The price depends mainly on your age, health and smoking status, the amount of cover, and whether premiums are guaranteed or reviewable. If you live a long time, you may pay in more than the policy pays out.
Tax. The payout isn't subject to income tax. Written in trust, it can usually be paid outside your estate, so it isn't itself taxed and can be used to pay the inheritance tax bill. We'll explain the options, and your solicitor or tax adviser should confirm the right approach for your estate.
What It Doesn't Do
- It isn't a savings plan or an investment. It has no cash-in value.
- It isn't cheap cover for a fixed period. If you only need cover while children grow up or a mortgage is repaid, term insurance costs less.
- Reviewable premiums can rise, sometimes significantly, at review points.
- If you stop paying, the cover ends, and you lose what you've paid in.
Real Scenario
Example scenario, not a real client
Leaving the House to the Children, Not a Tax Bill
A couple in their 60s expect their children to face an inheritance tax bill on their estate, including the family home.
Outcome: Working alongside their solicitor, they take out joint whole of life cover written in trust, which pays out after the second death so the children can pay the bill without selling the house.
Common Questions
What's the difference between guaranteed and reviewable premiums?+
Can I cash in my policy?+
What is a joint second death policy?+
Do I need a trust?+
How is this different from term insurance?+
Related Guides
Term vs Whole of Life Insurance
Two very different products that serve different purposes, here's how to choose.
Read guide →Trusts
Writing a life insurance policy in trust means the payout goes to people you choose, through trustees, rather than into your estate. It can mean your family receives the money sooner, and it is usually kept outside your estate for inheritance tax.
Read guide →Over 50s Life Insurance
Read guide →This guide is general information, not personal advice. Check Financial Ltd is an appointed representative of Capital Protect Ltd, authorised and regulated by the Financial Conduct Authority.