Whole life insurance: everything you need to know

When it comes to buying life insurance, we can’t help but look for a long-term solution to protect our loved ones. As the name would suggest, Whole life insurance ensures cover for the remainder of your life, giving your family peace of mind. 

How does whole life insurance work?

Known to some insurers as ‘life assurance’, whole life insurance is a type of life insurance that provides permanent cover. Like most types of life insurance cover, when you die your family receives a lump sum paid out by your insurer.

Once you take out a policy you then start paying premiums (monthly or annually) to your insurer. If for whatever reason you fail to keep up with your payments, your cover will be ended.

Why buy whole life insurance?

One of the key benefits of a whole life insurance policy is that it provides you with permanent cover. This means that your family will receive a pay-out no matter when you die – providing that you keep up with your premiums.

Among a lot of things, the payout from a whole life policy can help to support your family with finances such as:

  • Daily living expenses

  • Household bills

  • Rent or mortgage payments

  • Childcare costs

  • Funeral expenses

Ultimately, if you have any dependents or are the sole provider of your household finances, then life insurance is a must. The last thing you want is to leave your loved ones with any financial burdens they would otherwise struggle to pay off.

The types of whole life insurance

Whole life insurance is generally offered as two forms of policy – balanced cover & maximum cover. 

  • Balanced cover – This is the standard type of whole life insurance cover. Your premiums and payout amount are fixed throughout the policy, regardless of when you die.

  • Maximum cover – Your insurer pays the money from your monthly premiums into an investment fund. The end goal is that the investment will earn enough money to cover the eventual pay-out.

However, if the investment underperforms, your premiums could be increased to cover the loss. Alternatively, the pay-out value could be decreased.

Whole life insurance or term life insurance?

When it comes to buying life insurance, the main options you are faced with are whole life insurance & term life insurance. But how exactly are they different from each other?

Term life insurance provides life cover for a set length of time (i.e 20 years or so), unlike whole life – which is permanent. Your family will only receive a pay-out if you die within this timeframe, otherwise, you will need to get further cover if required. Just like whole life, the premiums and pay-out for a term life policy are fixed.

The main difference between these types of cover are the cost & length. Term life insurance is generally cheaper than whole life insurance but only covers you for a set period. Whole life, on the other hand, is more expensive but provides permanent cover.

How much does whole life insurance cost?

There are a range of aspects that determine the cost of your life insurance policy. The main factors being your age & overall health. As you get older, the risk of developing health issues and even death increases, therefore so does the cost of life insurance.

When applying for a policy, your insurer will most likely ask you for some information like:

  • Your age

  • Health

  • Occupation

  • If you are a smoker

  • The type of cover you want

  • The length of cover

If you work in a high-risk job you may be required to pay more for your premiums. Smoking too can increase the cost of your policy, though some insurers may reduce it if you quit. One of the key ways to save money on life insurance is buying cover at an early stage when premiums are at their lowest. 

If you are still unsure about whether life insurance is the right choice for you, it’s best to seek advice from a financial adviser. 

 

Another alternative is to speak to an advisory insurance broker. They can provide expert advice as well as helping you find the best policy for you and your loved ones.

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