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The benefits of whole of life cover

Whole of life insurance, or life assurance, policies are designed to pay out in the event of your death, whenever this may be.

This is as opposed to term life insurance, which will only pay out should you die within a certain set period of time.

There are various benefits to whole of life cover that we’ll go through over the course of this guide.

In This Guide:

Whole of life assurance vs. term life insurance

When you take out a fixed term life insurance policy, then up until the end of the set period (generally 25 years), it will pay out a tax-free sum on your death. However, should you live beyond the set period, the policy will not pay out, nor will you get any return on the premiums you have already paid.

With whole of life cover on the other hand, as the name suggests, you will be covered for you entire life and whenever you do pass away, your policy will pay out.

If you want to be safe in the knowledge that your loved ones will receive the cash they need to maintain financial stability and comfort in the most difficult of times, then a whole of life policy is likely to be for you.

However some people prefer term insurance as it means that you don’t need to keep paying for your life insurance if you live until, say, 80, when your family might be less financially dependent on you.

Avoid inheritance tax by writing a whole of life policy in trust

A great option to maximise the benefits associated with a whole of life insurance policy is to write it in trust. This means that the pay-out goes directly into a trust intended for a specific beneficiary to be paid out when they reach a certain age.

One major benefit of doing this is that you will bypass the inheritance tax threshold as the money paid out goes directly to the intended beneficiary, rather than going into your legal estate.

Is whole of life cover more expensive?

Term insurance tends to be cheaper than whole of life cover, but it is important to strike a balance between short term costs and long term rewards.

It is sometimes worth paying a little bit more so that you can be certain that your loved ones will receive the pay-out they need should the worst happen.

You should check with your provider to see whether their policy comes with guaranteed or reviewable premiums. Guaranteed premiums will stay the same throughout the course of the policy (unless you change the level of cover), whereas reviewable premiums will be subject to change based on various different factors including general changes in the insurance market.

Should I get whole of life assurance?

If you are 75 years old and want to purchase life insurance, you’re probably better off with a fixed term policy, as you will benefit from better prices, and are unlikely to need cover beyond, say 25 years.

If, however, you are younger, and want to guarantee a good inheritance or to make sure that your family can keep up with daily expenses as well as any household debts, then a whole of life policy might just you the peace of mind you need.

Increased costs

Whole of life cover does cost more than other forms of life insurance, given the fact that a pay-out is guaranteed.

However, you get what you pay for in that with such a policy there is no doubt that, unless you change the policy of course, your family will receive sufficient financial support should the worst come to pass.

Fixed premiums

The way in which the premiums are charged will vary depending on the provider in question but often whole of life policies come with fixed premiums.

This means that the amount you pay (as well as the amount of cover you receive) stays the same throughout the duration of the policy. Sometimes, you will only have to pay up until the age of, say, 70, after which the cover will continue but for free.

Other whole of life policies might come with reviewable premiums, that are subject to change at semi-regular intervals based on either changes in your health status or in the insurance market generally, including influences of inflation.

Surrender value

When you take out a whole of life policy, you’ll generally have the option of cashing it in at any point and in return you’ll receive what is known as the surrender value.

This won’t be as much as the full policy value, especially if you do this early on, but it’s good to know that the option is available.

Always check with your provider and read the policy small print to find out whether you have this option and what kind of surrender value you can expect if so.

What other things can affect the cost of my life insurance?

One of the major things that the cost of your life insurance policy will be based on is your state of health. This includes any health problems or serious illness you have or have had at the time when you open up the policy, as well as any aspect of your lifestyle that affects your health, like whether or not you smoke or whether you partake in any particularly dangerous hobbies like skydiving.

Also taken into account will be your family medical history, as many illnesses or medical conditions can be inherited.

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