Everything you need to know about whole life insurance

Many of us come to a crossroads in life as to whether or not we should buy life insurance. However, death isn’t something we can gamble on – it’s a guarantee.

Whole life insurance can provide your family with financial security in the event of your death. In this article, we’ll cover the basics of whole life insurance and why you should consider buying it.

What is whole life insurance?

Whole life insurance is a specific type of life insurance that provides permanent cover. When you die a tax-free lump sum is paid out to your loved ones to support them in this difficult time.

This type of cover is also known by insurers as ‘life assurance’. This is because it pays out no matter when you die, therefore your family is assured of a payout. The pay-out can help with finances your family would otherwise struggle to pay without you.

How does whole life insurance work?

When you take out whole life cover you make monthly premium payments to your provider. You must keep up with these payments to remain covered.

There are two main types of whole life insurance cover:

• Balanced cover – The standard form of whole life cover, where the pay-out value remains fixed throughout your cover. Your premiums also stay the same even as you get older and prone to illness.
• Maximum cover – Your insure places the money paid for your premiums into an investment fund. The aim is to make a return big enough to cover the eventual pay-out amount.

However, maximum cover comes with its risks. If the investment performs, you may even receive bonuses added to your policy. If it fails, your premiums can be raised to cover the loss. If you’re looking for a risk-free policy, it’s best to opt for balanced cover.

If you’re over 50, you are eligible to buy over 50s life insurance. This is a whole of life policy designed for people aged 50 and over who may not be accepted for standard whole or term life insurance cover.

You can also get joint life insurance, which covers you and your partner/spouse under a single policy. This type of cover is popular with couples, as it can be easier to manage than individual policies. The cost of your cover can also work out cheaper.

Joint life insurance cover can be bought on either a first death or second death basis. First death pays out after the first death of a policyholder. The policy then ends and the surviving party will need to get further cover if required.

Second death policies will only pay out once both policyholders have died. This is beneficial for supporting your children if both parents pass away.

Who needs whole life insurance?

Naturally, if you’re single with no dependents it is unlikely that you will need life insurance. Whole life insurance is best suited for those with a family or other financial dependents. The last thing anyone wants is to leave their family in a vulnerable state financially, that’s why it’s important to have financial protection in place.

The pay-out can be used to help your family with living expenses, household bills, mortgage repayments, funeral costs and other finances. This money can also be used towards your children’s future such as education costs or to buy their first home.

It’s important to assess the financial situation of your family before buying life insurance. For example, if your family could still manage without your income they may need less cover, thus saving you money on premiums.

For long-term partners or married couples without children, it may be a better option to take out joint cover. This can work out both cheaper and easier to manage than individual cover.

Is whole life insurance expensive?

Generally speaking, whole life insurance is more expensive than a standard term life policy. This is mainly because it provides permanent protection, assuring your family of future financial protection.

Term life insurance, while cheaper, provides cover for a set period of time. The length of cover can range anywhere between 5 years or 50 and longer, depending on how much cover you need. With this policy, your family only receives a pay-out if you die within the term, if not, the policy simply expires.

There are a range of factors that can affect the cost of your policy. Your insurer will usually ask you some questions to gather information to determine the cost of your premiums. Your insurer will usually want to know:

• Your age, weight, & height
• Health (sometimes including your family medical history)
• Occupation
• Smoker status
• The amount cover you need

Age is one of the biggest factors for the cost of life insurance. As you get older, you are deemed a higher risk to insurers, therefore the cost of cover rises. One way for getting cheap life insurance is to take out cover at an early stage as premiums are fixed.

Can I cash in my policy early?

In most cases, it is possible to cash in a whole life policy if you no longer need it or cannot afford your premiums. If you cancel your cover, the money you receive may be much less than the original pay-out – known as the ‘surrender value’.

The surrender value of your policy is usually much less than what you have already spent on premiums. It could be even less if you’ve only had the policy for a short amount of time. Because of this, only cash in your policy if it’s necessary or have exhausted all other options.

If you are ever unsure about the terms of conditions of your policy, it’s best to speak to your insurance provider.

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