When it comes to buying life insurance, there will always be pros and cons to consider. However, we’re going to look at one specific type of cover – whole life insurance. We’ll discuss how a whole life policy works, the levels of cover available, as well as the benefits and drawbacks of owning a policy.
What is whole life insurance?
Whole life insurance (also known as life assurance) is a form of life insurance policy that provides coverage for the policyholder’s entire life. When the insured person dies, the policy pays out a lump sum to their chosen beneficiaries. This can be used as an investment or saved for retirement. With this type of policy, your family has peace of mind, knowing that they are covered no matter what the future may hold.
This type of policy has 2 levels of cover:
- Non-profit whole life cover – The cost of your monthly premiums, and payout value, are fixed throughout the policy. You won’t need to worry about your premiums rising over time as you get older or if you develop medical conditions.
- With-profits whole life cover – This level of cover works much differently, as your policy is linked to an investment fund. Every month, your insurer invests the money paid for your monthly premiums to make a return that will cover the payout value. This policy has an element of risk vs reward. If the investment succeeds better than hoped.
Whole life insurance is often compared to term life insurance – these are the two main types of coverage. The main difference between term and whole life policies is how they are structured. Term insurance only covers you for a limited time, as specified in the policy, while whole life insurance will pay out no matter when you die.
Pros of Whole Life Insurance
- Cover is permanent – Whole life policies last right up until your death (providing that you keep paying your monthly premiums).
- Guaranteed payout – As the cover is permanent, your family is guaranteed to receive a payout so long as your death meets the terms and conditions of your policy.
- Premiums stay the same – another benefit of owning whole life cover is that your monthly premiums won’t rise. Even as you get older, or develop health conditions, your premiums remain the same.
Cons of Whole Life Insurance
- Premiums are expensive – Premiums for whole life cover typically cost more, especially when compared to term life insurance. However, unlike term life, whole life cover has the benefit of permanent protection.
- It can be risky – types of cover, like with-profits whole life insurance, can be considered risky, as your insurer invests the money from your premiums. If the investment fails, you may need to pay more for premiums to cover the loss.
- Quotes are costlier as you get older – if you don’t have insurance, buying when you are older can cost much more. This is because as you get older, you are more likely to develop health conditions compared to when you are young.
How much will whole life insurance cost?
Whole life insurance can have different costs, depending on where you bought the policy. These costs are worked out as a premium, which you pay each month to your chosen insurer. Typically speaking, the price of life insurance premiums usually depends on several factors, including:
- Age
- Health – can also include family medical history
- Level of cover (non-profit, or with-profits)
- Smoker status
- The amount of cover needed
You should always shop around for quotes before purchasing any kind of insurance. It’s important to compare different providers to ensure you’re getting the best deal possible.
How much cover will my family need?
This depends on what stage of life you are in. For example, if you are single and childless, then you’ll probably need less cover than someone who is married and has children. If you are the latter, you should consider the financial impact of your death and how it will affect your family.
For example, if you are responsible for your home’s mortgage, when you die, the debt doesn’t disappear. Your mortgage lender will expect your loved ones to make repayments, if not, they may be forced to sell the property. Your funeral expenses can also leave your family with a financial burden. However, if you have life insurance cover, the payout from your policy can help your family with expenses.
You may want to consider getting a joint life insurance policy. This is ideal for couples who share finances and want to leave money to the other party should one of you die. This can be bought as an add-on to an existing policy, or as a standalone policy.
Note that because whole life insurance is considered a long-term policy, you should consider long-term plans for your family. Perhaps you want to leave a legacy for your children or to act as an inheritance for your grandkids. Either way, whole life insurance will ensure your family has financial security for years to come.
