Unlike a fairytale, none of us hold a crystal ball that can show us the future. Death is a natural part of life, but also unpredictable. Though life insurance costs money, the peace of mind it can provide is priceless. With whole life insurance, you can ensure your loved ones are protected financially, no matter when you die.
Whole life insurance has many benefits – which we’ll discover in this article. But first, we need to understand what whole life insurance is.
What is whole life insurance?
Whole life insurance (also known as ‘life assurance’) is a type of life insurance policy that covers you for the rest of your life. Unlike other types of life insurance, whole life insurance has no expiry date – so long as you keep up with your premium payments. No matter when you die, your family is guaranteed a lump-sum pay-out to support them during this difficult time.
Generally, whole life insurance is one of the more expensive cover options available but has a range of key benefits. To sum up, it’s a long term option, guaranteed to provide support for your family.
Types of whole life insurance
Whole life insurance is usually offered in two main forms – balanced cover & maximum cover.
Balanced cover works so that your monthly premiums are ‘fixed’ – meaning they remain the same throughout the policy. Your insurer agrees on a fixed cash sum that is paid out when you die. The good thing is that even as you get older and your health deteriorates, you’ll still pay the same as before for your premiums.
Maximum cover works differently, in which your policy is linked to an investment fund. The money paid for your monthly premiums is invested by your insurer. The aim is to make a return on the investment to cover the eventual policy pay-out. The downside is that if the investment fails, your premiums may be increased to cover the loss.
What are the benefits of whole life insurance?
- Permanent coverage
Unlike term life insurance – which covers you for a set amount of time, whole life insurance keeps you covered right up until death. All you need to do to remain covered is keep up with your monthly premium payments.
- Premiums are fixed
Providing you select balanced cover, the cost of your policy premiums stay the same. This remains in place throughout the policy. Your policy pay-out also remains fixed – meaning the cash value of your policy won’t decrease.
- Guaranteed pay-out
Just as it says in the name – with life assurance, you and your family are assured of a lump-sum payout. It doesn’t matter when you die, they’ll receive a payout as long as you keep up with your premium payments.
- Provides your family with financial protection
One of the key benefits of owning a whole life insurance policy is that your family is provided financially when you die. The money from the policy pay-out can be used to help with things like:
- Living expenses and household bills
- Large payments like debts, loans & mortgages
- Educational costs such as school and university fees
- To assist with funeral costs
- To leave as a legacy
How much does whole life insurance cost?
Just like most types of insurance, several factors determine the cost of cover. Before taking out cover, your insurer will ask you some questions regarding your health and lifestyle such as:
- Your age
- Current health
- Smoking status
- The level of cover needed
As with most types of life insurance, the key is to take out cover while you are younger. The older you become, the greater a policy will cost, likewise, if you smoke you can expect to pay more for premiums. However, some insurers may offer to reduce the cost of your policy if you quit smoking as an incentive.
What are the alternatives to whole life insurance?
There could be a number of reasons why you may decide against whole life insurance, the main one being cost. In that case, you may be better off opting into a term life insurance policy as it is generally cheaper.
- With term life insurance, you only trigger a pay-out if you die within the policy term. If you survive the policy term you will no longer receive cover or any refund on the premiums you’ve paid.
There are other forms of cover such as income protection insurance and critical illness cover – however, these policies do not cover death. These can be taken out separately or as an add-on to a life insurance policy.
- Income protection insurance provides you and your loved ones with financial support if you are unable to work due to illness or injury. Generally, the pay-out is calculated as a percentage of your salary. Some policies will also cover you in the event of redundancy.
- Critical illness cover pays out a single cash lump sum if you are diagnosed with a critical illness. Not all insurers cover the same illnesses (they may have different definitions that you would need to meet in order to make a claim) so it’s important to check the terms of your policy.
Whichever policy you decide to take out, make sure you’ve covered all options and providers to find the best policy for you and your loved ones. For the best results, get in touch with an online life insurance advisor, today!