If you are looking to provide your loved ones with a lump sum when you die, it may well be worth investing in a whole life insurance policy.

As the name suggests, a whole life policy is designed to last as long as you. Whereas a term insurance policy will expire after the set period of time passes, a whole life insurance policy will only come to an end after your death.

Taking out a whole-life policy means you will pay a premium every month, which will cover you for a set amount of money. This money will be paid out when you pass away and your next of kin makes a claim on the policy; this is commonly known as the “payout”.

In the case of some policies, you are able to stop paying the premiums when you reach a certain age; nonetheless, you will still be covered.

You are able to take out a policy for two people if you choose. However, the policy will only pay out once, which will be when the first person dies.

The perks

Many people, particularly parents, opt for a whole life insurance policy to help lessen their family’s tax bill after their death. This is especially useful in cutting down the price of inheritance tax; writing a whole life policy under trust will result in your beneficiaries receiving a cash free lump sum, which can be used to pay the bill for inheritance tax.

Aside from the help it can provide with taxes, a whole life policy also helps to pay for funeral costs and sort out any issues your family may be having, financially.

Sickness or disability benefits are also included in some plans.

What to watch for

It is common for many insurers to guarantee they will not increase your premiums and sum insured for the first ten years of your policy being activated. However, they will review your plan after 10 years, which may result in your premiums being raised, so it is important you understand the nature of any guarantees associated with any policy you are thinking of taking out.

What will affect your premiums?

The price of your premiums will depend on various factors: Your age, health, lifestyle choices and the sum you are insured for. If you are deemed to be high-risk, your premiums will be higher than someone who is in good health and lives a healthy lifestyle.

This should not be construed as advice and is for guidance only.