What is it?

It is a type of life insurance policy that pays out when you die.

These policies usually cost you more than any other type of life insurance because the policy lasts your entire life, meaning you are almost guaranteed a payout.

What types are there?

There are three types of whole of life insurance policy:

  • Non-profit: You pay fixed monthly premiums until you die. You agree the payout amount when you take out the policy. Compare non-profit whole of life insurance policies here.

  • With-profit: You pay fixed monthly premiums, which your insurer invests in stocks and shares. Depending on market performance, you could end up with more or less of a payout compared to a non-profit policy.

  • Unit-linked: Your monthly premiums are based on the payout amount you choose. However, the insurer invests your premiums into the stock market meaning you may need to pay in more if the policy's investments under perform.

How does it work?

You pay your premiums until you die, then your family make a claim on your behalf and the insurer pays out.

However, some insurers give you the option to review your policy after a set amount of time, such as 10 or 15 years.

This gives you the opportunity to increase or decrease the cover you have on your policy, for example:

  • You might increase the cover if you have had children and want a bigger payout to cover them.

  • You might decrease your cover if you had chosen a payout amount to match your mortgage, but you owe less and no longer need as much cover.

With the reviewable option, even if you do not need to change the amount of cover, your premiums are still likely to go up due to your age and health.

Does it always pay out?

Mostly, but there are several reasons your insurer will not payout, including:

  • You lied when you set up your policy: The most common reason for insurers not to pay out is due to non disclosure of personal details. For example, holding back on medical conditions, or your family's medical history.

  • Your cause of death was not covered: Check what causes of death are covered by a policy before you apply. Each policy has a list of exclusions that mean you will not get a payout, such as dying relating to alcohol or drug abuse.

Should you get it?

If you only need life insurance to cover a set amount of time, such as the same length as your mortgage, then a whole of life policy may not be a cost effective option for you.

Here are some pros and cons of a whole of life policy:

Pros

  • Can give your family a lump sum of money to support them whenever you die

  • It can help cover the cost of any inheritance tax due on your assets

Cons

  • You could end up paying more into a policy than you get out

  • You do not get a payout if your cause of death is not covered in your policy

If you only want cover while you have a mortgage or until your children move out, you could consider a term life insurance policy instead.