My Complete Guide to Whole Life Insurance

damianyouell Whole of life insurance is the name given to an insurance policy which guarantees a pay out when the policy holder passes away. It is often more expensive than the average fixed term policy simply because the insurance provider knows that one day they are going to be paying out on the policy. Most people do not need whole of life cover and only want to make sure that their children are cared for if they die young in which case a standard term policy is sufficient. However, if an individual needs a pay out, for example to cover the cost of the funeral the whole of life insurance might be ideal. Let’s look at whole of life insurance in more detail. If whole of life policies are needed for IHT purposes or they have investment elements these will be referred to a suitably qualified and authorised financial adviser.

Introduction to Whole of Life

One of the most common of all insurance policies is the whole life insurance policy. This policy not only covers for the death of

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the policy holder, in some instances it also accumulates a cash value. A form of endowment insurance, the whole life insurance policy does exactly what it says; it covers the life of the insured so long as they make the monthly payments.

The reason why these kinds of policies accumulate a monetary value is simple; the premiums that are charged cover more than the cost of the life insurance. The extra money is then put aside and used to negate any future costs, this helps to lower the cost of the premiums in the future.

The person who’s name the policy is in can apply to cash in the accumulated money that has built up if they end the policy. The value of the amount they can expect to receive will depend on how much money has built up, as well as being subjected to deductions from surrender fees and penalty charges.

Uses for Whole of Life

Death is, unfortunately, the one thing in life that is guaranteed to happen to all of us, and it is when we have departed that the people left behind are troubled by funeral expenses. Not only that, but there is the problem of inheritance tax to pay on any assets. These are the reasons why people opt for whole of life policies.

Inheritance Tax Planning – If you are seeking a whole life insurance policy for the purposes of inheritance tax planning or for help with looking after a dependant child should you both die, then a lot of people have signed up to a policy that offers joint life, 2nd death cover. The problem is, that not many insurance companies are in a position to offer this kind of policy, and you will not find them on comparison websites either. Most insurance companies only offer the more traditional, joint life 1st death. However, as there is a greater demand for joint life 2nd death policies, more and more insurance companies are now looking at offering this type of policy.

Funeral Expenses – Ironically – and unfortunately, as it befalls all of us – dying is one of the most expensive things you will ever do in your lifetime. There is no doubt that there is real need for people to make provision for their death and the attached financial cost that will follow, so that the final bill is not picked up by those left behind. Yet, there are still millions of people across the country that do not have sufficient life cover that will help to ease the financial burden of their funeral costs. You need to understand that the cost of a funeral has risen by almost 75% in the past 9 years and there is no sign that this is about to stop. That works out at an increase of little over 8% per year, so if you already have a policy, you may want to make sure that the premium you pay increases by about 10% year on year.

Provide for Permanent Dependants – When the policy holder dies, the beneficiaries will only receive the face value of the insurance policy, not the cash value, unless you have signed up for a policy that specifically pays out the face value and the cash amount that has built up. Many adults in Britain do not have any kind of legally binding will in place. Not having a will can cause big problems for those family members who are left behind, and for that reason alone, having a will is extremely important. A lot of people who do not have a will in place say that they cannot afford it, however, this is not a valid excuse, as there are plenty of companies who will arrange a will for you for minimal costs. In addition to which, there are now do-it-yourself will kits that you can buy, and all you need to do is to find someone to witness it, however, it is easy to make a mistake on a will you write yourself, so you may want to get a solicitor to give it the once over.

‘will writing and taxation and trust advice is not regulated the Financial Conduct Authority’

Whole of Life Vs the Guaranteed Over 50 Plans

When you reach the big five-oh you will be eligible to join an over 50’s plan, which is similar to a whole life plan, however, there are a few differences between the two policies. The main difference is that with whole life cover, you will need to be medically assessed, which means that you are not guaranteed to be accepted. With an over 50’s plan you will not need to undergo a medical, therefore your chances of being accepted are a lot greater.
Another difference that you will need to consider when weighing up the options of whole life versus an over 50’s plan is the financial benefits that your dependants will receive. The amount of cover that you can expect may well be restricted on an over 50’s plan, whereas with a whole of life plan you can expect to get cover that could run into the 100,000’s. One final thing to remember is that with the over 50’s plan, you may well have an exclusion period, in which the policy will pay less than the cover is for.

Summary of Whole Life Insurance
  • Pays out a guaranteed amount of money when you die
  • If you have a high value estate, it can help you to cover the costs of inheritance tax
  • High amounts of cover
  • No exclusion period