Whole life insurance – a comprehensive explanation

September 15th, 2022
Whole life insurance – a comprehensive explanation

Whole of life insurance does exactly what the name suggests – it provides a guarantee that in the event of your death, the policy will pay out to your nominated beneficiaries, regardless of when this happens or how old you are at the time. For this reason, it is often referred to as life assurance.

It offers a significant amount of security to people who have a family that are dependent on their income and is often chosen by people who have large financial burdens such as mortgages, debts or business loans in order that their loved ones will not be burdened with these costs at the worst possible time. There are a variety of providers that offer this type of policy so it is sensible to compare whole of life insurance quotes before settling on a particular policy.

How Does Whole Life Insurance Work?

With a whole life policy, the insurer knows that they will have to payout at some point – they just don’t know when. In order to protect themselves, the premiums for whole life insurance UK policies are generally much higher than for level term or decreasing term life insurance policies where insurers recognise that there is a chance that the policy will end with the policyholder still alive, thereby not having to pay out at all.

There are two categories of whole life insurance UK – balanced cover and maximum cover – and which one you choose depends on your personal circumstances and risk appetite. You will be able to choose either a single life insurance policy or a joint one whereby two people are covered, but the payout only occurs on the death of the first person insured.

Balanced cover guarantees that your premiums will not change over the life of the policy. This offers huge benefits in that it is easy to plan for your outgoings, and if you are diagnosed with medical conditions later in life, they will not affect your premiums, however you will need to ensure that the premiums will remain affordable for the entire time that you need to pay them, which includes after you retire.

Maximum cover allows your insurer to link your policy to an investment fund. They will invest your monthly premiums with the intention being that the returns will be enough to cover the eventual payout that they have committed to. There is a risk that whilst the premiums on this type of policy will be cheaper initially, they can increase through the term of the policy and in some cases become unaffordable.

As with all life insurance policies, you will need to agree at the outset the lump sum payout amount that you wish the insurance company to provide to your dependents on your death. This sum is guaranteed provided that you comply with the terms and conditions of the policy, maintain your monthly payments and do not die from a condition that is excluded.

Choosing a Life Insurance Policy

Free Price Compare can provide a whole life insurance quote, based on your personal circumstances and the information that you provide, in order to help you to determine whether this type of policy is suitable for you.

There are alternatives to a life assurance plan and it is important to understand your options before you commit to a policy to ensure that it offers what you need and will not create an unnecessary financial burden.

The first step is to consider why you wish to take out a life insurance policy. If you have significant financial debts or are a co-signatory on a property or business whereby the other person would be unable to afford to keep it in the event of your death, you may wish to discuss your finances with a money management expert such as the government’s Money Advice Service [1] before taking out a life insurance policy as they may be able to suggest other ways in which you can clear your debts, manage your money better or set up a will or trust to provide an inheritance.

If you are the main or only wage earner in your family and have a mortgage or children under the age of 18, a term life insurance policy may provide the financial security that you need without the commitment of ongoing payments for the rest of your life. This type of policy would allow you to select a term (for example, 25 years to coincide with the length of the average mortgage) and provided that you maintained your premiums for the whole of the term, would pay out upon your death if your death occurred within this time. If however, you survive past the term of the policy, you would not receive the payout or any premiums back. This type of policy offers a generally acceptable compromise whereby the risk is shared by both the policyholder and the insurer.

You will then need to determine a payout amount. It is sensible to consider the size of payout that your beneficiaries would require to maintain their current lifestyle should you no longer be able to provide for them. This includes replacing your salary, paying for the mortgage and other bills, and providing for children until at least the youngest reaches the age of 18. Selecting an amount that is unnecessarily high will increase the size of the premiums that you will need to pay, whilst reducing the payout amount to below the required value could leave your loved ones in financial difficulty.

Once you have decided on the type, term and value of the policy that you require, you can compare quotes for life insurance to find the policy that offers you the best balance of value and security.

Terms and Conditions

As we briefly touched on above, it is vital that you read and understand the terms and conditions of any insurance policy before signing on the dotted line. This is because exclusions and special terms could cost you money or cause your policy to be invalidated and therefore of no use to the people that it is being set up to protect. Not all insurance providers have the same terms and conditions so when you run a whole of life insurance quote, it is sensible to confirm that there are no material differences between the policies that may affect your decision.

Some typical exclusions to check relate to cause of death. Many life insurance policies will exclude death through suicide, alcohol or drug abuse or death due to partaking in a high-risk activity which has not been declared at the outset of the policy.

Some policies may become void if they are not kept up to date, so it is important to notify your insurer if your personal circumstances change. This includes moving home, taking up a new high-risk hobby, getting married or divorced, changing your nominated beneficiary or being diagnosed with a medical condition.

You should also remember that failure to maintain your monthly payments can result in the insurance company cancelling the policy.

What Are The Benefits Of Whole Life Insurance?

Whole of life insurance guarantees that provided you comply with the terms and conditions of the policy and maintain your payments for as long as you need to (some insurers require that you pay your premiums until your death while others will stop expecting payments at a certain point in time) your beneficiaries will receive a payout at such time as they are notified that you have passed away.

It is often chosen by people with an estate worth over £325000 to help their family to pay their inheritance tax bill. In order to deliver this benefit, the life insurance policy needs to be written in trust [2].

Whole life insurance can also erase your debts and provide an inheritance to loved ones, as well as paying for your funeral expenses.

Alternatives To Life Insurance

If you have run a life insurance quote and been surprised by the monthly cost, you may wonder what the alternatives are in order to provide your family and loved ones with financial security in the event that you are no longer with them.

The first option is to put at least the equivalent value to the premiums into a high interest savings account or ISA, building your own savings pot that can be left to your dependents. In order to guarantee that your savings are left to the person that you want to receive them, it is important to write a will that specifies what you have and how you wish your money and belongings to be apportioned [3].

You could choose to take out income protection insurance which does not pay out on your death but provides a tax-free income of up to 70% of your regular salary should you be signed off work due to illness or injury until such time as you either return to work or reach retirement age.

Critical illness cover is another option which would pay out a tax-free lump sum should you become critically ill during the term of the policy. Again, you could choose to have this type of policy until such time as your mortgage was paid off or your youngest child had turned 18.

If your main motivation for taking out a life insurance policy is to ensure that your dependents wouldn’t be left homeless if you were to pass away, you could consider taking out mortgage protection insurance instead. This type of insurance typically costs less on a monthly basis than a traditional life insurance policy as the payout will only pay off the mortgage. To keep the costs as low as possible, you can choose to take out a decreasing term policy whereby the monthly premiums will reduce in accordance with the outstanding mortgage debt. As with life insurance, if placed in trust, the payout resulting from this type of policy will be free from inheritance tax.

You may be covered by an employer’s death in service benefit and it is worth checking this before taking out a policy of your own. This benefit is often provided free of charge by your employer and will pay your nominated beneficiary a tax-free lump sum should you die whilst in the employment of the company. The payout is usually up to four times your annual salary so even if this is less than you would wish for your family to receive, knowing what you are entitled to could allow you to get a quote life insurance with a lower payout figure, resulting in more affordable monthly premiums.


There are many reasons why a whole life insurance policy is a valuable consideration for many people, but it is important to remember that in order to benefit from it, payments must be made every month for the term of the policy and they must therefore be affordable. There are ways of reducing the cost of the premiums but it must never be at the expense of the people that the policy is set up to protect. Understanding the level of cover required and comparing life insurance quotes is a sensible way of ensuring that you get the security that you need for a price that you can afford.

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