InsuranceLife Insurance

Understanding Whole Life Insurance

Adult and children hands holding paper family cutout

Though we may be too busy living in the moment, It’s never too early to plan for the future.

None of us wants to leave our family with a financial burden when we’ve gone. With whole life insurance, you are guaranteed a pay-out no matter when you die. But before you rush in and buy a policy, there are some things you’ll need to know.

In this article we’ll look at:

  • What is whole life insurance?
  • Types of whole life insurance
  • Cashing in your whole life insurance policy
  • Whole Life Insurance vs. Term Life Insurance
  • How can I reduce the cost of my policy?

What is whole life insurance?

Whole life insurance (also known as life assurance) is a type of life insurance policy that covers you for the rest of your life. This policy guarantees a lump sum pay-out no matter when you die. Whole of life insurance is typically more expensive than fixed-term policies – which cover you for a specific period, rather than permanently.

When taking out a policy plan with your insurance provider, you’ll begin paying monthly premiums which will carry out until you die. Once you die the policy ends and a pay-out is issued to your dependents. The pay-out remains exactly the same whether you die 5 years or 50 after taking out a policy.

Types of Whole Life Insurance

Same as most life insurance policies, whole life insurance is usually split into two types – Standard cover & maximum cover.

With standard cover, the cost of your monthly premiums remains the same throughout the length of the policy. The great thing about this type is that even as you get older, you won’t have to pay an increase on your premiums. The downside is that because the payout is fixed, it will be affected by inflation as the cost of living rises.

Maximum cover can work out cheaper to begin with compared to standard cover. However, your insurance provider regularly reviews your policy. As your circumstances change, so can the cost of your premiums. You may find as you get older you will be paying more for premiums than when you started the policy. The amount you are covered for can also be reduced over time.

How much cover you need will depend on you and your families circumstances. Before you buy any kind of life insurance policy make sure you’ve worked out which policy works best for you.

Cashing in your whole life insurance policy

You may be able to cash in your whole life insurance policy if you no longer want to be covered or can’t afford to continue paying premiums. While this may seem simple enough, there are strings attached. Most of the time the surrender value (the amount you receive for cashing in a policy) is lower than the amount you’ve paid into the policy.

If you are sure you no longer want to be covered, then it makes sense to cash out your policy rather than continue paying premiums – though it is best to stay covered. However, it’s always best to make sure you’ve read the terms of the policy as your provider may not allow you to cash in your policy, or there may be hidden charges you didn’t know about.

Whole Life Insurance vs. Term Life Insurance

Whole life insurance and term life insurance are the two main types of life insurance that you will come across.

The main benefit of whole life insurance is that your loved ones are guaranteed a pay-out when you die. It lasts for the whole of your life – hence the name, so long as you keep paying premiums. Term life insurance is cheaper than whole life insurance, however, there are differences between the pair.

Term life insurance is designed to pay out after a specific period. It protects your family from potential financial burdens you might not be around to help with. It can be used to help cover things like: 

  • A mortgage
  • Paying off outstanding debts and loans
  • Your families everyday living expenses
  • Funeral costs
  • School or university fees

The main downside to term life insurance is if you die after the term period, your policy won’t pay out. This means you will need to take out another life insurance policy if you still want to be covered. Term life policies are for the short term, usually taken out when you buy a house to cover the mortgage. Whole life is the long term option, intending to leave something for your family when you die.

Ultimately it depends on the circumstances of you and your family. Whole life insurance providers peace of mind andd guaranteed protection, but it is more expensive. Term life insurance is cheaper, provides your family with financial protection, but only covers you for a certain period.

How can I reduce the cost of my policy?

When you apply for whole life insurance – or most life insurance for that matter, your insurance provider will ask you some health and lifestyle questions. These factor into how much you are likely to pay for premiums. These factors include:

  • Age – The older you are, the high premium costs will be
  • Health – If you are in bad health you will pay high premiums or be denied coverage entirely
  • Height & weight
  • Your occupation – Expect to pay more towards your life insurance if you’re employed in a high-risk job
  • Your lifestyle – Whether you smoke or how often you drink alcohol

These factors can vary from provider to provider. If you have any pre-existing health conditions, your provider will most likely ask for your family medical history. If you are a smoker, some providers will reduce the cost of your premiums if you give up.

The main ways that you can keep premium costs down are to:

  • Get covered when you are young – The older you become, the more you will pay for life insurance
  • If you smoke, give up – Not only will it boost your life expectancy, but can reduce premiums.
  • Explore a joint life policy – This is where you and your partner share a life insurance policy rather than take out individual policies.
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