Whole of Life or Fixed-Term: What’s Really the Best Life Insurance for Parents?

August 20, 2014 by Georgina El Morshdy

imagesWhen I bought my first house at the end of my twenties, I also had to make some “scary” financial decisions.

As you may have experienced yourself, it’s a big step going from monthly payments for a rented room (all bills included), to a mortgage and all the other extras required when you’re a fully-fledged, “responsible” homeowner.

What’s more, with a baby number on the way, it becomes even more pressing to get your financial priorities, such as life insurance, in order.

But have you done enough research into the options you have available? If you don’t, you could make a costly mistake.

Let me explain…

Price v Longevity

Like many mums, when it came to life insurance I was entirely motivated by price.

Because I was getting life insurance to cover my mortgage payments, I wanted a fixed-term deal at the cheapest price from a reputable insurer.

So when I was offered a £50 voucher as an incentive from a brand I trusted, the deal was done.

But in the longer run, would I have been better opting for whole of life cover instead?

Let’s look at the differences, because they may help ensure you take the right decision for you.

1. Fixed-term life cover

This type of policy provides a cash payout of the insured amount should you die during the life of your policy. On the flip side, if you die after the policy has expired, you get nothing.

So whilst you get financial security during the life of your policy – which is perfect for people who want peace of mind that significant financial commitments will be covered – some mums don’t like the idea of investing money and then receiving nothing in return.

(As an aside, I know some mums aren’t aware that a fixed-term does in fact mean cover for a finite amount of time. Now, this isn’t that surprising when the very phrase “life insurance” is a tad misleading. This confusion is one of the reasons we recently recorded a series of life insurance myths. You can watch Myth 2, which relates to the misconception that life means life, here.)

If this sounds like you, you’d be better off opting for whole of life cover.

2. Whole of life cover

This option means that as long as you continue to pay your monthly premiums, regardless of when you die, you will receive a cash payout.

The key benefit with this type of life insurance is you can leave your children a guaranteed cash inheritance. What’s more, you get to decide the amount that inheritance will be based on the amount of life cover you choose.

Term vs Whole of Life: Which option is right for you?

As you’d expect, there is a price difference between these two options. To show you this difference in practice, here’s a current quote from to put some numbers around the options for you…

Quotation date 18th August 2014

Female non-smoker age 32

Premium type: Guaranteed (i.e. it won’t change once you’re accepted for cover)

Insurer: PruProtect

Cover amount: £125,000

1. £125,000 cover over a 25 year fixed-term through PruProtect: £8.65 per month.

2. £125,000 whole of life cover through PruProtect: £49.04 per month.

Looking a little deeper, for the fixed-term plan, after 25 years you’d have paid £2,595 in premiums. In addition, if you outlived the term you’d get nothing back at the end.

In comparison, with the whole of life policy, you’d pay £14,712 over 25 years, but the cover (and therefore the payouts) would continue to run for as long as you kept paying.

But should price be the only factor in your decision-making?

Is it ever worth paying £40.39 a month more (until you die) to cover your entire life?

The answer to this key question depends on your motive for seeking life cover in the first place.

For example, if you’re a price sensitive buyer and you’re looking for short-term peace of mind whilst you have a big mortgage looming over your head, a cheaper, fixed-term policy may be exactly what you need.

However, if you want to provide a guaranteed cash sum for your children when you die, you may come to see whole of life cover as an investment, instead of a necessity.

Returning to the numbers, here’s an interesting calculation that puts a slightly different spin on this discussion. Here’s what Sion John of Harris John Financial Ltd says about the Pru Protect whole of life policy quote:

“Strangely it’d be impossible to pay in more than your family would get back because it would take you 212.4 years to pay your insurer £125,000 in premiums.”

Here’s what he means and how those calculations broken down for you.

a) 125,000 (cover amount) divided by 49.04 (premium) = 2549 (monthly payments to get to 125,000)

b) 2,549 (monthly payments) divided by 12 (months in a year) = 212.4

So it’d take 212.4 years to pay in £125,000 in premiums

So perhaps whole of life cover isn’t as expensive as you’d think…

Some things to note

Now clearly, whole of life cover is not for everyone.

Committing to monthly payments over an extensive period of time is a significant responsibility. Especially when you consider that as soon as you stop paying, your cover will expire (and any money you’ve already paid in will effectively be lost) – so to benefit from whole of life cover you do need to be in it for the long term.

It’s also wise to have a plan like Emily, who consciously took out £50,000 whole of life cover to provide her young son with a guaranteed cash payout.

It seems that whatever decision you do make around life insurance has to be right for you and your family. Just make sure you’re aware of both options when you make your choice. That way you can ensure you do make the right decision for you both now and in the future.

What do you think?  

What are your motivations for taking out life cover? What were your reasons for choosing whole of life over fixed-term (or vice versa?)? I’d love to know what you think, so please leave your thoughts in the comments below.

And if you want to discover just how easy it is to get yourself covered, check out Katie’s three-step guide in this quick video.

Disclaimer: Life insurance is NOT a form of financial investment. This article is not intended to provide you with any advice. You should always speak to your financial advisor before committing to anything to ensure that any financial decisions you do make are the most suitable for you and your family.

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