Whole Of Life Insurance

How It Works

You take out cover for a chosen amount and pay a monthly premium. The policy has no end date, so as long as you keep paying, it will pay out a tax free lump sum whenever you die. That is the key difference from term insurance, which only pays out if you die within a set number of years.

Whole of life is medically underwritten, so you answer health questions and the insurer may ask your GP for a report. A healthy applicant can get a larger sum for the money. You can usually take out a policy up to about age 80. Most modern policies have no cash in value, so if you stop paying, the cover ends.

Guaranteed Or Reviewable Premiums

This is the most important choice with whole of life, and it is easy to get caught out. There are two ways the premium can be set.

• Guaranteed premiums. The price is fixed at the start and never changes, for life. It costs more at first, but you always know what you will pay.
• Reviewable premiums. The price starts lower, but the insurer reviews it every 5 or 10 years and it can rise sharply, especially as you get older. It can become unaffordable later, just when you most need the cover to stay in force.

For long term cover, guaranteed premiums give certainty over cost, for a higher starting price. If you are quoted a low reviewable premium, check how it could change over time before you decide.

What It Is Used For

• Helping with an inheritance tax bill. The most common reason, giving your family the cash to pay the tax without selling the home.
• Leaving a legacy. A set sum for children, grandchildren or a charity, paid when you die if the policy remains in force and its terms are met.
• Covering a funeral. Often through a simpler guaranteed acceptance over 50s plan, which is a type of whole of life cover for a small sum.
• Supporting a lifelong dependant. For example a child who will always need care, where cover that never ends can be relevant.

Whole Of Life And Inheritance Tax

Inheritance tax is charged at 40% on the part of your estate above the £325,000 nil rate band.3 Whole of life insurance does not reduce that tax. What it does is provide a guaranteed, tax free lump sum that your family can use to pay the bill, so they do not have to sell the family home or other assets to find the money.

For couples, this is often arranged as a joint life second death policy, which pays out when the second partner dies, which is usually when the tax becomes due on the combined estate. Many policies also let you increase the cover over time, so it keeps pace if your estate grows.

What It Costs

Whole of life costs more than term cover, because it has no end date. The price depends most on the amount of cover, your age and your health. Here are some illustrative monthly costs for a healthy non smoker with guaranteed premiums.

Healthy non smoker, guaranteed premiums. Life Adviser analysis of published pricing, illustrative and not quotes.4 For smaller sums aimed at a funeral, a guaranteed acceptance over 50s plan can start from about £5 a month.

Writing It In Trust

Writing a whole of life policy in trust is almost always the right move, and it is usually free. A trust means the payout goes straight to the people you choose, outside your estate. That brings two big benefits: the money reaches your family quickly, without waiting for probate, and it does not add to your estate for inheritance tax.

This matters most for inheritance tax planning. Without a trust, the payout is counted as part of your estate, which can increase the very tax bill the policy was meant to cover. Most insurers provide standard trust forms, and you can usually name specific people or a wider group of family members.

Is It Right For You

Whole of life suits some clear situations, but it is not for everyone. It is fair to weigh it up.

• It can suit you if you want to leave a set sum, expect an inheritance tax bill, or need cover that lasts your whole life rather than a fixed term.
• Term cover may be better if you only need protection for a set period, such as while a mortgage is running or the children are growing up, because it costs far less.
• Bear in mind that because it pays out whenever you die, living a long time can mean your total premiums add up to more than a small payout, and most policies have no cash in value.

Why Use Life Adviser

Whole of life has more moving parts than term cover, from the premium type to the trust, and small choices have big effects. Life Adviser explains them.

We explain guaranteed and reviewable premiums, trusts and inheritance tax in plain English, so you can see the difference. We compile and cross check real UK pricing and claims data.

The reassurance is in the numbers. In 2024, UK insurers paid a record £8 billion in protection claims, with whole of life and over 50s plans accounting for more than £2 billion of that.1 Life Adviser does not give advice or arrange policies.

Frequently Asked Questions

Does whole of life insurance always pay out?

Whole of life insurance is designed to pay out when you die, provided the policy remains in force and its terms are met, such as keeping up the premiums. Because it has no end date, it costs more than term cover.

How is it different from term life insurance?

Term cover runs for a set number of years and only pays out if you die within that time. Whole of life has no end date and is designed to pay out when you die, provided the policy remains in force and its terms are met, so it is dearer.

Should I choose guaranteed or reviewable premiums?

Guaranteed premiums cost more at first but never change. Reviewable premiums start cheaper but can rise sharply at each review and become unaffordable later. For long term cover, guaranteed premiums give certainty over cost.

Do I need to write it in trust?

For inheritance tax planning it is essential. Without a trust, the payout is added to your estate and can increase the very tax bill it was meant to pay. A trust is usually free to set up.

Can I cash it in?

Most modern protection policies have no cash in value. If you stop paying the premiums, the cover simply ends, so choose a premium you can keep up.

Is the payout taxed?

It is paid tax free. It counts towards inheritance tax, charged at 40% above £325,000, unless the policy is written in trust. Tax treatment depends on your circumstances and can change.3

This guide deals with death and inheritance. For impartial money guidance you can use MoneyHelper, the government backed service.

Getting Started

Decide what the cover is for and how much you need. If it is for inheritance tax, work out the likely bill. Guaranteed premiums fix the cost, and a policy for inheritance tax is usually written in trust from the start. Then compare a few insurers and answer the health questions honestly. For a large sum or complex estate, it is worth taking regulated advice.

Cover, price and eligibility depend on your age, health, smoker status and insurer terms. Whole of life pays out whenever you die, subject to continued premiums, and total premiums may exceed a small payout. Inheritance tax planning can be complex; this guide is general information, not advice. Life Adviser does not give advice or arrange policies.