What is whole life insurance?

When you are young life insurance can seem like one of those things that you don’t need until you are much older. However when you have dependants and a mortgage it can be one of the most important safety nets you can have.

It can seem daunting knowing which cover is the best one for you. Term insurance, whole life insurance, balanced cover.

What does it all mean? 

When deciding to take out life insurance it is important that you obtain several quotes. Some will vary greatly in price. You may either contact the insurance companies directly for a quote or use a price comparison website to compare several different companies all at the same time.

What is life insurance? 

When you take out life insurance you are simply ensuring that in the event of your death your family will receive a lump sum, or monthly payments, to help them cover the household bills, pay off the mortgage or simply use it towards the cost of your funeral.

This can sometimes be called Life Cover or Death Cover and the amount of money they receive will be dependent on the level of cover that you choose to have. 

What is Whole Life Insurance? 

When you take out your insurance plan you can choose to have term life insurance or whole life insurance. The two differences between these are how long the cover lasts for. 

  • Term Life Insurance This insurance lasts for a specific amount of time. For example twenty years. Your life insurance will only pay out if you pass away during this term. If you have term life insurance for thirty years but passed away after thirty-one years your family would not receive any money even though you paid your insurance for all that time. 
  • Whole Life InsuranceThis type of insurance is different because it covers you for your whole life, no matter what age you pass away. As long as you pay the monthly premiums then your insurance will pay out whether you pass away after ten years or fifty. Typically whole life insurance is more expensive than term insurance as your insurers know that at some point they will have to make a payment. 

Are there different types of whole life insurance? 

There are two main types under the whole life umbrella – 

  • Balanced cover – With balanced cover your premiums stay the same for the duration of the policy, even as you age and your health deteriorates. 
  • Maximum cover – With maximum cover your insurance is linked to an investment fund. Your insurer will invest your monthly premiums in the hopes that the returns generated will cover the cost of the eventual payout. Periodically the investments and your premiums will be reviewed. If the investments are not doing too well then your premiums may increase or the size of the payout to your family may be decreased. 

Will whole life insurance be beneficial to me?

What type of life insurance would benefit each individual person will greatly depend on their own personal circumstances. 

  • If your estate is worth more than £325,000 then whole life insurance can be helpful in ensuring that your family will have the funds needed to pay the inheritance tax bill which stands at 40% 
  • Likewise if you have dependents, whether this be a spouse or young children that depend on your income then having whole life insurance can be beneficial. Many people then change to term life insurance once their mortgage is paid off and their children have grown up and are no longer reliant on your income. 

What is the price difference between term insurance and whole life insurance? 

AGE 30 20 YEAR TERM £5.08 WHOLE OF LIFE £34.25

AGE 35 20 YEAR TERM £6.85 WHOLE OF LIFE £41.24

AGE 45 20 YEAR TERM £13.58 WHOLE OF LIFE £61.28

AGE 50 20 YEAR TERM £20.87 WHOLE OF LIFE £82.10

As you can clearly see the term life insurance is cheaper, however it does not come with the guarantee that no matter what age you pass away your family will receive a payout. Sometimes the peace of mind can be worth the extra expense. 

The cost of life insurance will vary between different insurance companies. They take several different points into account when determining the cost of your life insurance – 

  • You age.
  • Your past medical history.
  • Your family’s medical history.
  • Your lifestyle – Things like your occupations and whether you take part in dangerous sports can increase your premiums. 
  • Whether you smoke. 
  • Alcohol and drug use.

When deciding to take out life insurance it is important that you obtain several quotes. Some will vary greatly in price. You may either contact the insurance companies directly for a quote or use a price comparison website to compare several different companies all at the same time. 

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