Whole of life insurance
Life cover with no end date, designed for inheritance tax planning and leaving a legacy. Cover continues while premiums are paid, and costs more than term cover.
Whole of life insurance pays a lump sum whenever you die, with no policy term, provided the cover is still in force and the claim meets the policy terms. Because there is no expiry date the insurer expects to pay at some point, so premiums cost considerably more than term cover. The most common use case is inheritance tax (IHT) planning: a whole-of-life policy written in trust pays a lump sum into the trust on death, which the family can use to settle the IHT bill without selling property or other assets. We arrange whole of life through a range of insurers and model the trade-off against alternatives like term cover and gifting strategies.
Who this is for
- You expect a sizeable inheritance tax liability and want to leave the family the means to pay it without forcing a property sale.
- You want cover with no end date, rather than a policy that ends if you outlive the term.
- You have specific legacy intentions, charitable bequests, gifts to grandchildren, that you want to fund cleanly.
- You have a business succession plan that needs liquidity on death of a major shareholder.
How whole of life differs from term cover
Term cover (decreasing or level) pays out only if you die during the policy term. Whole of life pays out whenever you die, as long as the policy is still in force and the claim meets the policy terms. There is no term and no expiry date, so cover continues for as long as premiums are paid. Stop paying and the cover ends, and a claim can still be declined if something material was not disclosed at application. That structure makes it more expensive: you are essentially paying the insurer the eventual claim cost, plus their margin, spread over your lifetime.
Why most whole of life is bought for inheritance tax
UK inheritance tax is charged at 40% on estates above the nil-rate band (£325,000, plus an additional residence nil-rate band where the family home passes to direct descendants). For estates above those bands, the IHT bill can reach hundreds of thousands of pounds. A whole-of-life policy written in trust pays a lump sum directly to the trustees on death, outside the estate for IHT, which the family can then use to settle the IHT bill, avoiding a forced property sale.
Guaranteed and reviewable premiums
Whole of life can be written on guaranteed premiums (level forever) or reviewable premiums (re-rated at intervals, typically every 10 years). Reviewable premiums look cheap at outset but can rise sharply at review. For long-term IHT planning we almost always recommend guaranteed premiums.
Sum assured and term planning
Right sum assured is your projected IHT liability at expected date of death, less any IHT-efficient assets. We model this against the family balance sheet and a realistic property growth assumption. Many clients pair whole of life with a programme of lifetime gifting, the gifting reduces the eventual IHT bill, the policy backstops what remains.
Cost considerations
Whole of life is materially more expensive than term cover. Premiums depend on your age, health, the sum assured and the insurer, and they scale steeply with age, so the only meaningful figure is a quote on your own details. We compare across providers and check that whole of life is genuinely the right answer before recommending it: for many clients, IHT-efficient gifting plus term cover for the seven-year potentially-exempt-transfer period is cheaper.
Specialist advice
IHT planning sits at the boundary of protection and full financial planning. We arrange the protection element and refer to specialist tax advisers (or your existing accountant) on the gifting and trust structuring strategy. Done together, the package is materially more efficient than either alone.
How Major Money Matters helps
Specific things we do for this product. No generic platitudes.
Model alternatives before buying
Whole of life is expensive. We model term cover plus a gifting strategy as the alternative and only recommend whole of life where the maths actually works.
Guaranteed premiums by default
For long-term IHT planning we recommend guaranteed premiums over reviewable. Reviewable look attractive at outset and bite hard later.
Trust set up properly at outset
Whole of life only works for IHT planning if it is in the right kind of trust. Trust documentation completed alongside the application.
Coordinate with tax advisers
We arrange the protection and refer to specialist tax planners (or your existing accountant) for gifting and trust structuring. The two together work better than either alone.
Frequently asked questions
Why is whole of life so much more expensive than term cover?
Because the insurer expects to pay out. With term cover, you pay premiums and most policies expire without claim. With whole of life there is no expiry date, so as long as premiums are maintained the policy is normally still in force when the claim comes, and the price reflects the eventual pay-out spread across your lifetime.
Is whole of life the right cover for a mortgage?
Almost never. For mortgage protection, term cover (decreasing or level) is the right answer at a fraction of the cost. Whole of life is for life-long liabilities like inheritance tax, not for liabilities that end when the mortgage does.
Can I cancel a whole of life policy if my circumstances change?
Yes, you can cancel at any time, but you will not get back the premiums you have paid. Some whole of life policies have a small surrender value but most do not. Cancelling early is generally an expensive mistake unless circumstances genuinely require it.
How does a whole of life policy in trust avoid inheritance tax?
A policy written in trust at outset means the proceeds belong to the trust, not to your estate. The pay-out is therefore not subject to the 40% IHT charge that would apply to assets in the estate. The family receives the pay-out, then uses it to settle the IHT bill on the rest of the estate.
Should I have whole of life as well as term cover?
Often yes. Term cover protects the mortgage and family during the working years. Whole of life sits underneath as the IHT-planning piece for after the term cover ends. They serve different purposes.
Can I get whole of life cover at older ages?
Yes, into the 80s with most insurers. Premiums rise sharply with age and detailed underwriting becomes more involved, but cover is generally available where there is a genuine need.
Related
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Read moreWhat our clients say
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Talk through whole of life and IHT planning
A short call to map your IHT exposure and whether whole of life is the right answer or whether term cover plus gifting works better. No pressure, no panel of three insurers.
We aim to return your call as quickly as we can. Mon to Fri 9am to 5pm, weekend appointments on request.