Whole of Life Assurance

About Whole of Life Assurance

Whole of Life Assurance is the only type of life cover that will guarantee to pay a lump sum on your death. This is because it is the only type of policy that guarantees to remain in force (providing you continue to pay the premiums) for the rest of your life.

Premiums for Whole of Life Assurance are higher than Term Insurance for the same amount of life cover because the price is calculated not just on the amount of cover, but also on the term of the cover and the likelihood it will be paid out.

As Whole of Life Assurance is certain to pay out, the premiums are higher to reflect this.
Whole of Life Insurance or Assurance?

The word “assurance” is used for policies that are guaranteed to pay-out provided the premiums are paid. The only type of policy that fits this strict definition is Whole of Life Assurance as this continues until you die, whenever this maybe – so to call it “Whole of Life Insurance” is technically incorrect!.

The word insurance is used for policies which will pay-out only in certain circumstances, which means if you die during the policy term. If you outlive the term there is no pay-out (like a car insurance that only pays out on an accident or theft).
Uses for Whole of Life Assurance

1.) Providing your loved one(s) with a lump sum on your death

If you die your partner may need a cash sum to help pay the bills and replace any lost income you may have. Whole of Life Assurance can provide this valuable peace of mind.

2.) Providing a lump sum to pay for your funeral and to pay off loans.

The average cost of a funeral is around £7,000. We can provide the peace of mind that your loved ones won’t be left with this bill to pay after you have passed away.

3.) Providing a lump sum to pay an Inheritance Tax bill

This could mean that assets which could include the family home, don’t have to be sold to realise the cash required to pay the Inheritance Tax.

The Inheritance Tax rate is 40% and this is charged on all estate assets in excess of the nil rate band, which is currently £325,000 for a single person. (More about Inheritance Tax).

Two single life policies, or one joint life policy?

The cost of two single life policies is usually only slightly higher than the premium for one joint life policy, but could result in the policy paying out double the sum assured.

Let’s take an example, say Sam and Sue, both 45 years of age, (non-smokers) wanting to protect their families with £50,000 of life insurance for the rest of their lives.

A Joint policy would be £49.80 per month and 2 Single Life policies would total £51.87 per month, a difference of roughly 5% in the premium. So as an example

On Sam’s death, his policy would pay out £50,000 but Sue’s policy would continue to provide cover. Sue’s policy would then pay out £50,000 on her death. A total payout of £100,000 between them, so cover is maintained unlike a Joint Policy First Death , The joint life policy would pay out £50,000, but then finish leaving Sue with no life cover, so if Sue now wants to replace her £50,000 it will cost more as she is older and may not be able to get cover depending on her health ?

You could however look to have the cover on a Joint Policy Second Death, For joint life policies you need to decide if the pay-out will be made when the first of the two lives dies, or the second.

Let’s take an example, Sam and Sue, both aged 45 years of age, are insuring their lives for £50,000 for the rest of their lives.

They can set the plan up so the £50,000 is triggered when either Sam or Sue dies, this is called First Death, or they can set the plan up so the £50,000 is triggered when both Sam and Sue have died, this is called Second Death:

In this example the Joint Life – First Death premium would be £49.80p.m. and the Joint Life – Second Death premium would be £23.02p.m. A rule of thumb is that second death policies would be around half the price of first death policies, but this is subject to the lives being roughly the same age. Matching two individuals of significantly different ages can produce wider differences in premium.

So we have different ways of taking out a whole of life assurance, so look at your circumstances and choose which type of cover is suitable for you.

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