When you buy life insurance, you’re usually doing so to make sure your family would be financially secure without you and your income. In some cases, you simply want to know that some money would be left to your family if you die, whenever that is.

This is why whole life insurance exists. It’s a kind of life insurance cover designed to protect you for your whole life – so there’ll always be a lump sum payout left to your loved ones when you die.

Since whole of life insurance guarantees a payout when you die, it tends to be more expensive than other types of life insurance – like term life insurance – because insurers know they’re always going to have to pay out at some point. That said, it provides very comprehensive cover and gives you total peace of mind that your family will be financially secure without you.

How whole life insurance works

Whole of life insurance pays out a lump sum when you die. You pay monthly premiums to be insured, in return for the lump sum paid out to your loved ones when you die, whenever that is. You’re insured by a whole of life insurance policy for as long as you live.

Different types of whole life insurance

Different insurers offer different types of whole life insurance policies, but there are two main types to know about:

Balanced (or guaranteed) cover

  • Your premiums stay the same (known as guaranteed premiums)
  • The payout amount stays the same over the life of your policy
  • Sometimes called ‘non-profit’ whole of life insurance

This is a straightforward whole of life insurance policy. You pay fixed monthly premiums in return for a fixed lump sum if you die.

Maximum (or investment-linked) cover

  • The premiums you pay are invested
  • If the investments perform well, the lump sum payout could increase
  • If the investments don’t perform well, your premiums could increase
  • Your premiums can change (known as reviewable premiums)
  • You can choose to cash out your investments before you die
  • Sometimes called ‘with profits’ whole of life insurance

This is an investment-linked whole of life insurance policy. You pay reviewable monthly premiums in return for a lump sum if you die, which could increase over the life of your policy if your investments perform well.

It’s important to understand that an investment-linked policy is higher risk than balanced cover, because the payout amount depends on the success (or not) of the investments. The premiums could also end up costing more than you can afford.

Is whole life insurance guaranteed to pay out?

Whole of life insurance is guaranteed to pay out if you die, whenever that is, so long as you’ve kept up with your monthly premiums and you don’t meet a policy exclusion. Policy exclusions could apply to anyone who takes out the policy or be specific to you, based on the health information you provided when you took out the cover.

Is whole life insurance right for me?

It depends on what you’re trying to achieve by taking out life insurance and how much you can afford (and are willing) to pay in monthly premiums.

For most people, term life insurance is perfectly adequate and more financially viable. With this kind of cover you can time it so that it ends when you no longer have financial liabilities – i.e. when your mortgage will be paid off or your children will be able to support themselves. By insuring yourself only for the time you really need it, you’ll pay cheaper monthly premiums.

Whole of life insurance  might be more suitable if you have financial liabilities that won’t ever go away (e.g. funeral costs or inheritance tax) – or you decide you always want to leave a lump sum of money to your family, regardless of their financial needs.

Can I cash out my whole of life insurance?

If you took out maximum whole life cover (i.e. investment-linked cover) then there should be an option to cash out early. However, it’s likely you’ll pay a penalty charge to do this – and you may end up cashing out less than you’ve put in.

Can I cancel my whole of life insurance?

You can always cancel a life insurance policy – but whether you get any money back depends on the type of policy you take out. When it comes to whole life insurance, you may be paid a surrender value if you took out investment-linked cover.

Alternative types of life insurance

  • Term life insurance
    Unlike whole life insurance, term life insurance comes with a set policy term. You’re insured for the agreed term and the policy will pay out if you die during that time.

    This kind of cover is suitable for someone whose life insurance needs will reduce over time – i.e. someone with a mortgage that’ll eventually be paid off or children who’ll eventually become financially independent. It’s an affordable way to take out life cover.

    Our guide to term life vs. whole life insurance will help you choose between the two.
  • Over-50s life insurance
    Like whole life insurance, with over-50s life cover you’re insured for your whole life. The policy pays out when you die, whenever that happens. This kind of cover is designed with an older age group in mind and, unlike other kinds of life insurance, doesn’t require medical underwriting (so you’re guaranteed to get covered, regardless of your health).
  • Family income benefit
    Family income benefit works like term life insurance in the sense that you buy cover for a fixed term, but instead of paying out a lump sum if you die, it pays out a monthly amount for the rest of the time you’re insured. It’s designed with families in mind – a practical way to make sure they’d be able to keep up with the monthly expenses without you.
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