What Is Whole of Life Insurance?
Whole of Life Insurance is one of a number of different types of Life Insurance products available on the market. As the name suggests, Whole of Life Insurance covers you for the whole of your life and does not expire, assuming you continue to pay the premiums. It is designed to protect funeral costs, inheritance tax liabilities or simply to leave some money to loved ones when you pass. It is concerned more with covering the liabilities that are sure to arise on your death, regardless when that might be.
What Other Types of Life Insurance Are There?
In contrast to Whole of Life Insurance which covers you regardless of when you die, there is Term Life Insurance. This does not cover you for your whole life, but rather for a certain period of time, for example 10, 20 or 30 years, to cover the specific time in which it is needed. Whilst raising your children perhaps or paying off your mortgage. It is the most affordable way to buy life insurance, but only pays out if you die during the term of the policy. This suits some people, as once your children are grown up and self-sufficient and the mortgage is paid off, they feel there isn’t a risk that needs to be covered. Term Life Insurance can be level or decreasing.
Level Life Insurance
Remembering that Term Life Insurance policies last for a set number of years – Level Cover requires the same premium and provides the same lump sum to leave behind, if you die at any time throughout the term.
So if you chose a level of cover of £150,000 for example, and a term of 20 years, if you die at any point during that 20 year period, your beneficiary would receive the £150,000 lump sum.
Level cover is ideal for:
- Covering your salary
- Paying off an interest-only mortgage
- Protecting your family to allow them to maintain their standard of living
- To pay school or university fees
Decreasing Term Life Insurance
A decreasing term policy works well to protect a repayment mortgage. As the value of the mortgage debt decreases, so do the premiums and the level of cover. If allowing your loved ones to continue to live in the house and not have to worry about paying off the mortgage are your main concern, this is worth considering as the monthly premiums are subsequently less than a level policy.
Life Insurance and Inflation
It is possible with some policies to protect the policy against the effects of inflation, to ensure your payout sum won’t be worth less in real terms in the future, due to the rise in the cost of living. Your monthly payments would also rise along the same lines.
Do I Need Critical Illness Cover?
Life Insurance policies are there to cover your financial obligations, but only on the occasion of your death. Some will pay out early if you are diagnosed with a terminal illness where you are only expected to live less than a year. But there are other circumstances that would not trigger the Life Insurance policy payout, but would render you unable to work and thus maintain the same financial commitments. Such conditions as cancer, stroke, heart attack or a life changing disability could all be accounted for with critical illness cover.
The chances of a critical illness are higher than that of death, so Critical Illness is a separate policy and it will add to your premium. But there could be even more costs to pay for surrounding a critical illness than with death; as you will still need to maintain your own lifestyle as well as your loved ones, and perhaps make alterations to the home.
Do I Need Income Protection?
Income Protection cannot be packaged together with Life Insurance in the same way Critical Illness cover can, but none-the-less it is relevant as another form of cover for illness and injury.
Income Protection is designed to cover any medical reason why you cannot do your job, and provides a percentage of your wages (before tax) while you are unable to earn. This is paid in the form of a monthly income, compared to a lump sum with Critical Illness.
