Too Expensive? Whole of Life Insurance explored

The Meaningful Money Personal Finance Podcast

Pete Matthew and Justin Harper discuss the strategic utility of whole-of-life insurance in modern estate planning. The conversation contrast

Key takeaways

• Whole-of-life insurance guarantees a payout whenever death occurs, provided premiums are maintained, unlike time-limited term insurance.
• A primary modern use case is managing inheritance tax (IHT) liabilities to ensure liquid funds are available for executors.

Main topics

• Whole-of-life vs Term insurance
• Inheritance Tax planning

Notable quotes

It's more a matter of when you die, because we all know we're going to die.

Conclusion

Whole-of-life insurance is an increasingly vital tool for managing est

Transcript preview

Speaker 1 (0:00) Hi folks and welcome back to Meaningful Money. This is session number 638, just me again. This was meant to be a Q &A episode, but Roger is a little bit poorly, a little bit under the weather, so I'm sure you'll join me in wishing him well. We're scheduled to record in another week now, so we'll be back to Q &As next week. So bringing forward a conversation with my friend Justin Harper, who has joined us fairly recently, actually only four or five months ago, and he is Chief Marketing Officer at LifeSearch. You know, I have a great relationship with LifeSearch. We've worked with them for a long time. Lots of Meaningful Money audience members have got in touch with LifeSearch to help them arrange their life insurance, income protection, all that good stuff. But today, specifically, we're talking about whole-of-life insurance and why I think it's underused. Get the lowdown on why it might be a really smart idea. Spoiler alert, it's going to become, for more people, many more people, a really smart idea. So... We'll get into that. Now, before we get into it, right at the end, after we'd stopped, we'd pressed stop on the recording, Justin said, oh, I forgot to name check. Because Justin knows his stuff, but he's a marketing guy, right? And when I sent him the questions in advance, he definitely got some help. He was the first to admit that, but then he forgot to name check them. So thank you to some of the teams at Zurich and Royal London, as well as some of the expert advisors at LiveSearch. who definitely equipped Justin for this conversation. And as I'm sure you'll agree, it was totally worth it because it's very rapid fire, really snappy, but we cover a lot of ground. So remember, links, as always, are at the show notes, meaningfulmoney.tv slash session 638. Here's my conversation with Justin Harper of LifeSearch. I'm delighted to welcome back, in fairly rapid succession actually, for the second time, Justin Harper. Justin, how are Speaker 2 (1:47) you Speaker 1 (1:47) doing, bud? Very Speaker 2 (1:48) good, Speaker 1 (1:48) thank you. Good to be back. Speaker 2 (1:50) Summer's behind us, but great to be here again. I know, it's flown by, Speaker 1 (1:53) hasn't Speaker 2 (1:53) it, actually? Speaker 1 (1:55) So just remind folks who you are, please, and what you do. So my name's Speaker 2 (1:58) Justin Harper. I'm Chief Marketing Officer at LifeSearch, one of the UK's most favourite leading protection specialist brokers. I'll have to get that in. And we look after hundreds of thousands of people to make sure. that they've sought their lives out properly should anything happen in their lives financially we're there to make sure they've got the solutions and things in place to make sure they're put right so yeah Speaker 1 (2:20) fantastic thank you for that so we're going to talk today about whole of life insurance yeah you know i've been chatting with yourself and uh and in uh my main contact uh life search and we're just thinking right how can we you know, explain stuff to people in a way that makes sense, that might make them think about taking action and just assess where they're at. And one of the things that we kind of came up with is that whole of life insurance, it feels like it used to be a really big deal. It used to be talked about a lot. And that's less the case now. That might just be my kind of experience. It's less the case now. But also it is to my mind quite quickly dismissed, particularly by... you know folks who might be listening to this who are generally you know financially secure they're heading towards retirement or they are retired and it tends to get sort of dismissed i think so i'm quite keen to dig in a bit because i think it's actually an extremely valuable let's do that let's dispel some myths Speaker 2 (3:18) perhaps exactly Speaker 1 (3:19) so let's let's start the top what is whole of life how does it work and how does it differ from the sort of insurance that most people understand which is term insurance Speaker 2 (3:27) okay actually i'll start with But whole of life is a life insurance policy, including the title. And also, it will pay out whenever you die. So it's not restricted in the same way as term is, which most people are familiar with term insurance, which will pay out if you die within a certain specified number of years. With whole of life, same concept, it will pay out if you die. It's more a matter of when you die, because we all know we're going to die. So if you provided and kept up your premiums throughout the term of the policy, then it will pay out. It's guaranteed. Speaker 1 (4:01) Perfect. Yeah, it'll pay out when you die, not if. Exactly right. But given that everybody does die, which is what I hate to admit it, I think sometimes, does that not make it... Bear in mind the premise of insurance, for the most part, is that the premiums Speaker 2 (4:15) of Speaker 1 (4:15) many pay for the claims of the few. Given that everybody dies, is it not just going to be phenomenally expensive? Well, expensive. It's more expensive Speaker 2 (4:25) than term insurance, let's say. Because you've got that guaranteed payout, provided you pay the premiums. So back to the, it's all a matter of when you die. Costs are more than term insurance, for sure. I've got a few numbers I can share later, which might add some colour to that. And I think what's important is that whole of life is perhaps... particularly nowadays and more recently, is being used for a different purpose to traditional protection. If you're looking at term assurance, typically that's great if you've got a family, you've got a mortgage, you're increasing your assets, increasing your wealth, and you want to protect that family situation should something happen. Whereas whole of life has a different role to play. It's more about... Some of those responsibilities may have moved away and dwindled. It's more about you've got some wealth, you've got your estate, you've got your savings investments, your pension. Now we'll come on to that, no doubt. It's about preserving that wealth and then making sure you can pass it on. And that's where a whole of life has a critical role to play. Speaker 1 (5:26) So it's more likely sort of later life. You can take it out whenever, of course. And I guess the earlier you take it out, the cheaper it is on a monthly basis. But you'll be paying it for longer. So it's kind of sort of swings and roundabouts. But so specifically then, what do most people use whole of life insurance for? Speaker 2 (5:46) That's changed a little. We've been doing a bit of homework on this over the last week or so. It is still a relatively... uncommon product. That's your point, is that it may have been a big thing back in the day, whenever that day was. It's definitely been quiet for the last 10, 15 years or so. And there's a number of reasons for that around the insurers. If you're offering whole of life insurance, as you can guess, you're guaranteed to make a payout. You're kind of making an assumption that not everybody will continue with their policies right to the end. But you have to set aside a shed load of capital as an insurer to make sure that If those claims do happen, then you're in a position to pay them out. And that caused a lot of capital strain amongst some of the insurers over the last 10, 15 years. Life has changed a little. I won't go into the mechanics behind that, mainly because I don't understand them all. But life is different nowadays. Premiums today are cheaper than they were five years ago for Speaker 1 (6:44) the Speaker 2 (6:44) whole of life. And there's some mechanics behind that. One of the things I did find is that... Actually, the volumes, levels of whole-of-life policy sales have remained pretty much similar. They're only about 27,000 or so sold a year, right? Which isn't, I think that's nothing. Compare that to term insurance, it's about a million policies are taken out every year. So, relatively small. What we've seen, though, over the last two or three years particularly, and we'll come on to the reasons why, is that the purpose and use of those has changed. I'd say in more recent times, before the last three or four years, perhaps they were just a simple way of either paying for a funeral, a legacy, typically a lower sum assured or cover amount. So you've got something you can pass on and guarantee to your two dependents if they need it as a kind of like a nest egg or security fund. What's definitely changing now, as we've seen particularly over the last three years, is the level of cover for policies has increased significantly. Speaker 2 (7:41) all around driving and supporting and planning for inheritance tax. And that's where we're seeing it's being used more and more for a whole host of different reasons. Speaker 1 (7:50) Yeah, that's the sort of obvious kind of use cases now, I think. Because, I mean... Speaker 1 (7:58) For some cases, you can kind of self-insure, but you can't self-insure against a tax on your assets, can you? No, really? Old assets, you're going to get taxed on them. And Speaker 2 (8:06) if you know what your liability is, or you think you know what your liability is going to be, if you've got enough to self-insure, you've got enough funds, then you need to put them somewhere and also make sure they're accessible for your dependents when that time comes. And there are also other planning routes as well, but whole of life has a really important part to play in inheritance tax. I think