Standard Life Insurance (often called term insurance) provides coverage for a fixed period—say, 10, 20, or 30 years. If you pass away during that term, your beneficiaries receive a payout. If you outlive the policy, it expires with no return.
Whole of Life Insurance, by contrast, guarantees a payout whenever you die—whether that’s in 10 years or 50. As long as premiums are maintained, the policy remains in force indefinitely, offering lifelong peace of mind.
Mortgage Lenders and Life Insurance: Protecting Your Home and Family
Most mortgage lenders in the UK require borrowers to have some form of life insurance. This ensures that, in the event of your death, the outstanding mortgage can be paid off, preventing your family from facing financial hardship or the risk of losing their home.
Beyond satisfying lender requirements, life insurance provides peace of mind. It ensures that your loved ones can maintain their standard of living, cover daily expenses, and secure their financial future without the added burden of mortgage repayments.
Why Whole of Life Insurance is a Smart Move for Inheritance Tax Planning
Inheritance Tax (IHT) in the UK is charged at 40% on estates exceeding the £325,000 threshold. With property prices and asset values rising, more families are finding themselves liable for IHT. Whole of Life Insurance can be an effective tool to mitigate this burden. Find out more about Inheritance Tax Planning and test out our IHT Calculator.
Guaranteed Payout
Unlike term insurance, Whole of Life Insurance ensures a payout upon death, providing certainty for your beneficiaries.
Tax Efficiency
When written in trust, the policy payout is excluded from your estate, making it free from IHT. This means your loved ones receive the full benefit without additional tax liabilities.
Liquidity for Estate Settlement
IHT must typically be paid within six months of death. A Whole of Life policy provides immediate funds, preventing the need to sell assets like property or investments to cover the tax bill.
Fixed Premiums
Many Whole of Life policies offer fixed premiums, allowing for predictable financial planning.
Life Insurance Claims in the UK: 2024–2025 Snapshot
Recent statistics highlight the reliability of life insurance in the UK:
- Protection insurers paid out a record £7.34 billion in claims during 2023, supporting individuals and families facing bereavement, illness, and injury.
- Whole-of-life insurance policies had a claims acceptance rate of 99.98%, with payouts totalling £1.216 billion.
- Term life insurance policies had a claims acceptance rate of 96.7%, with payouts totalling £3.922 billion.
These figures underscore the importance of having life insurance coverage to provide financial security for your loved ones.
Premium Comparison: Term vs. Whole-of-Life Insurance
Understanding the cost differences between term and whole-of-life insurance can help you make an informed decision. Here’s a comparison based on a non-smoker in good health seeking £150,000 of coverage:
| Age | Term Life Insurance (20-year term) | Whole-of-Life Insurance |
| 30 | £5.36/month | £38.12/month |
| 40 | £10.77/month | £51.30/month |
| 50 | £26.54/month | £63.22/month |
Source: Reassured.co.uk
While whole-of-life premiums are higher, they guarantee a payout, making them a valuable tool for estate planning and IHT mitigation.
Do you have a limited company?
For contractors, freelancers, and small business owners operating through a limited company, Relevant Life Insurance offers a tax-efficient way to provide death-in-service benefits.
Corporation Tax Relief
Premiums are paid by the company, and are usually considered an allowable business expense, reducing your corporation tax liability.
No Benefit-in-Kind Tax
Unlike some employer-provided benefits, Relevant Life Insurance does not count as a benefit-in-kind, so there’s no additional income tax or National Insurance to pay.
Tax-Free Payouts
When set up in trust, the policy payout is typically free from both income tax and IHT, ensuring your beneficiaries receive the full amount.
Final Thoughts
Choosing the right life insurance policy depends on your individual circumstances and financial goals. Whole of Life Insurance offers a guaranteed payout and can be a strategic tool for estate planning and IHT mitigation. For business owners, Relevant Life Insurance provides a tax-efficient way to protect your family without impacting your personal tax position.
It’s advisable to consult with your Broadbench advisor to tailor a solution that fits your needs and ensures your loved ones are protected.
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