Whole of life insurance

Life assurance differs from life insurance, because it guarantees a payout when you die. Find out more about the differences, your options and which might be best for you.

Amy Smith
Amy Smith
Updated 19 May 2020  | 4 min read

Key points

  • Whole of life insurance (also known as life assurance), guarantees a payout when you die
  • You pay a premium and your insurer invests it. When you die, your insurer pays out an amount, depending on how well your investments have done
  • Check the details of any life assurance policy you’re considering to make sure it suits your needs

What is whole of life insurance? 

Whole of life insurance - also known as life assurance - is a policy that guarantees to payout when you die. It differs from life insurance. That’s because life insurance (fixed-term policies) will only pay out if you die within the policy term.

Life assurance is more expensive than a fixed-term policy, because the insurer knows that it’ll have to pay out eventually. 

When might a life assurance policy be for you?

If you only want to secure a payout in case you die while your children are still dependants, or while your mortgage is still outstanding, you won’t necessarily need whole of life cover – you might find term life insurance  is more suitable.

If you want a guaranteed payout, regardless of when you die, life assurance could be right for you. 

It’s important you understand that the value of the payout depends on your investment’s performance and that charges or fees will reduce your policy’s value. 

It’s easy to get confused with life insurance and life assurance but they’re different products and work in different ways

Life insurance runs for a set amount of time and is worth considering if you have dependents and big financial commitments. You can tailor payments and cover to suit your lifestyle, say opting for less cover later in life as you pay off the mortgage or the kids leave home.

Life assurance covers you for life which means a guaranteed payout when you die. For both types of cover, premiums are calculated based on your lifestyle, age, occupation and health.
Sue Hayward, Personal Finance & Consumer Journalist, Broadcaster & Author

How does whole of life insurance work? 

You take out a policy and pay the insurer a premium. You usually pay your premiums monthly, but it could be annually or a lump sum. 

The  money you pay gets invested on your behalf, and when you die your beneficiaries will get a payout. 

As long as you keep paying the premium, you’ll be insured. 

With some policies, that means you’ll be paying premiums well into old age and up until you die. But some only ask that you pay premiums for a fixed number of years. You’ll still be insured until you die without paying anything else. 

You might be able to add cover for certain illnesses, or for becoming disabled and unable to work, to your life assurance policy too.

Types of life assurance

There are two main types: 

Standard whole of life insurance

You’ll sometimes hear this called balanced cover. The insurer sets a premium that’s high enough to stay the same throughout the term of the policy. So you get older, but you don’t end up paying more and you’ll still get the same cover. 

Maximum cover 

Maximum cover can be cheaper at first, but what differs is your insurer will review your policy fairly regularly. 

When they review your policy, if you’re deemed more of a risk, they could ask you to pay higher premiums. Alternatively, your premiums might stay the same, but the amount of cover you get could reduce. 

Things to consider when getting whole of life cover

It’s important to:

  • Read the small print of your policy, or call up your insurer to explain, so you know exactly what’s covered
  • Check the exclusions and limitations to see what’s not covered
  • Find out whether your policy will be reviewed, and how this could affect your premiums
  • Understand whether you can cash in your policy before you die – if this is something you might want to do, make sure you find a policy that allows this
  • Know what happens if you have a change in circumstances, for example being made redundant or falling ill

How to keep the cost of life assurance down

  1. Live a healthy lifestyle – avoid drinking, smoking and keep generally fit and well
  2. Take it out when you’re young - generally the younger you are when you take out the policy, the cheaper your premiums will be
  3. Be honest about medical conditions - Some insurers will insist on a medical check before insuring you 
  4. Compare life insurance  and take your time -  don’t just focus on the price, check out the policy features and exclusions too. There’s no rush to buy
  5. Think about long-term affordability - the longer you live, the longer you’ll be paying premiums so set yourself a budget before you commit