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Whole of life insurance explained

When buying life insurance, it's good to know what different policies are available to you. This guide will run through what whole of life insurance is. It will help you decide whether it’s the best option for you and answer popular questions. 

What does whole of life insurance mean?

Whole of life insurance is a policy that lasts for the policyholder’s lifetime. If the policyholder dies, whole of life cover pays a lump sum to their family or beneficiaries. A similar type of cover is term life insurance. The difference between the two policies is that term life covers you for a fixed period of time. Whole of life guarantees a payout after you die. 

Your beneficiaries won't receive a payout if you die after your term life policy runs out. With whole of life insurance, a payout is always guaranteed whenever you die. This guarantee is why whole of life insurance is also called life assurance. If you would like whole of life insurance, you’ll need to pay a premium, the amount will vary from insurer to insurer. In exchange for this premium, you will receive a payout in the event of your death.

Depending on the policies of your insurer, you can pay these premiums monthly or yearly. You can make payments until you die, for an agreed time or as a one-off payment. The options available depend on your provider. The price of your premiums depends on several factors. These include age, gender and health for example.

Many whole of life insurance policies also let you invest part of the money from your premium. That means it could become a form of equity if the cash value grows. If you wish, you can withdraw some of this cash tax-free. This won’t affect the payout sum as the investment element of most policies is an added benefit to the policy.

You may also get to decide how much money you invest. As well as where it gets invested, and how much is put into your life assurance. Most of the time, the insurer will make these decisions. We do not offer this service at Vitality.

Can you have more than one life insurance policy?

Yes, you can have as many policies as you want. It’s completely up to the individual. For instance, you could have whole of life and joint life insurance. There are pros and cons to having a combination of policies.

One of the main pros is that if you have two policies, you could have two payouts. Another pro is that you’ll most likely be covered for more eventualities. Despite this, paying two premiums can be quite expensive and is not always possible. 

The good thing is most insurers understand that everyone’s situation is different. It is usually possible to adapt a policy to match your requirements. Then, if your circumstances change, you can review your policy and amend it.

How much whole of life insurance do I need?

The amount of life insurance you need is unique to your personal circumstances. For instance, if you are single, without any children and no debt, you may not need a large payout. You'll need to consider how much you might need to pay off if you have a partner, children, a mortgage and other debts. You can then work out how much life assurance you would need based on these figures. You can calculate this by adding up all your debts and your family’s outgoings.

You should also check if you have any other types of automatic life cover in place. For example, your employer might offer a death-in-service payout. This is usually 3-4 times your salary. This amount might be enough life cover if you are single and have no debts.

Are whole of life insurance policies taxable?

A whole of life policy is not subject to capital gains tax or income tax. But, if your estate is worth over £325,000, you may have to pay inheritance tax.

This is charged at 40% for any assets over that threshold. It is possible to avoid inheritance tax by writing your whole of life policy into a trust. This can make a big difference to the payout that your beneficiaries will receive.

The £325,000 threshold could change in future. So, it’s best to check the Inheritance Tax (IHT) Threshold to see if these tax rules still apply. 

Does whole of life insurance expire?

No, it doesn’t. Whole of life insurance policies last until you die, they are permanent and don’t have an expiry date. This means you don’t have to worry about buying a new policy or extending your existing one if it’s nearing the end date.


Relevant guides and articles 

  • Term life insurance guide

    Thinking about life insurance? Term life insurance covers you for a predetermined amount of time. Find out everything you need to know about term life cover and whether it suits your needs in this guide.

  • Serious and critical illness guide 

    Serious and critical illness cover pays out a lump sum if you are diagnosed with a serious condition. The condition may not be life threatening, but it still impacts your life.

  • Joint life insurance guide

    How is joint life insurance different to single cover? Find out the answer to this question and learn all about whether this is the best option for you and your partner.