Whole of life insurance – How much do you need?

16 min Read Published: 17 Mar 2021

Whole of life insurance calculatorFor those who wish to buy life insurance that will pay out when they die it is important to ensure that the right type of life insurance policy is selected. Not all life insurance policies run right up until death happens. Additionally, consideration needs to be given as to who will receive the benefits and what tax implications there may be, if any.

In this article, I explain how to work out the amount of life insurance you may need and how to ensure that the payout from such a policy reaches your intended beneficiaries. If you are unfamiliar with a whole of life insurance type of policy, you may find it useful to read our article, "Whole of life insurance - what you need to know"

What is whole of life insurance?

Essentially, a whole of life insurance policy provides a lump sum of money when you die, whenever that may be. Unlike term life assurance policies - which only pay out if you die during the term - it does not expire after the number of years that you choose. Instead, the policy continues to protect you until you die, at which point a claim can be made by the beneficiaries for the amount of death benefit that was arranged.

Whole of life insurance can feel complex but as long as you have worked out what you need first, it should be quite simple to arrange. Understanding how much money will be needed when you die and who should receive it are foremost in this.

How much whole of life insurance do I need?

Working out how much life insurance you need will depend on the reason that has prompted you to think about life insurance. The purpose should be clear to you but here are some common reasons for choosing a whole of life insurance policy:

  • Funding an inheritance tax bill
  • Paying for your funeral
  • Leaving a legacy

Your own specific needs may be different or they may be a combination of the above. Either way, working out how much money will be needed when you die is vital. It is usually simplest to look at each of your requirements individually before you combine them and you can do this yourself, rather than using a complex online whole of life insurance calculator. 

Funding an inheritance tax bill

You should take the time to work out what your inheritance tax bill will be. It is also wise to think of ways that it may change. The value of your estate may increase or decrease over time and gifts made during your lifetime may also affect its value and the resultant inheritance tax bill. If your estate is not simple, you should seek professional advice to ensure that you have considered this complex area appropriately. A solicitor and/or a financial adviser can provide the necessary advice. 

You can calculate your inheritance tax liability using our inheritance tax calculator

Assets that qualify for inheritance tax business relief

If you are a business owner then you should also look at how the value of your business assets will be assessed for inheritance tax after you die. There is legislation that provides business relief on inheritance tax at between 50% and 100% depending on the type of asset. You can find more information about how different types of business assets are taxed in this government article "Business relief for inheritance tax"

Residential nil rate band

From 2017 an extra nil rate band for your main residence which passes down to your direct descendants was introduced. It was phased in and reached £175,000 in 2020/21. This extra allowance has certain rules and limitations dependent on factors such as the size of your overall estate. You can read more about it in our article "What is the residence nil rate band for inheritance tax"

Paying for your funeral

The average cost of a funeral in the UK is around £4,000 but this will vary depending on where you live and whether you opt for a cremation or a burial. Discussing these types of arrangements with family and friends can be difficult but it is useful to work out who would need access to the money in order to make arrangements. It can also ensure that your wishes are understood by all concerned parties and helps to avoid any differences of opinions after the event. 

It is also useful to consider inflation and how the cost of a cremation or burial may increase over time.

Cost of a funeral in the UK

English region and UK Nations Cost of a simple cremation Cost of a simple burial
London £3,192 £6,685
South East England £3,306 £4,301
East of England £3,322 £4,086
Wales £3,179 £3,994
West Midlands £3,262 £4,801
East Midlands £3,273 £3,751
North West England £3,253 £4,088
Yorkshire and the Humber £3,284 £4,271
North East England £3,232 £4,086
Scotland £3,081 £3,993
Belfast £2,844 £3,042

Source: www.moneyadviceservice.org.uk

Leave a legacy

Leaving a legacy is a very personal decision and one that may not be determined by a need but rather a want to give money to a person or an organisation upon your death. For this reason, the value that you attribute to this is subjective and depends on your wishes. If the money is meant to provide for something specific then do factor in the effects of inflation on the value that you choose.

Also, it is worth noting that gifts made to registered charities are usually exempt from inheritance tax. Whether you make this gift upon death, through your will in the form of a charitable legacy or a gift to charity during your lifetime, the value of the gift will be exempt from inheritance tax.

Furthermore, giving 10% or more of the value of your net estate to registered charities can reduce the inheritance tax charge from 40% down to 36%. Your net estate is the total value of your estate less the exemption threshold (£325,000 in 2020/21). Although this can seem like a simple calculation, working out your net estate value may require factoring in trusts and other arrangements and so you should speak to a solicitor and/or financial adviser to understand this accurately. These are important considerations around charitable legacies that could have a significant impact on your inheritance tax bill. You can find such professionals using Vouched For* or Unbiased*.

Who gets my whole of life insurance when I die?

Having worked out how much life insurance to arrange with your whole of life insurance policy, you'll need to consider who will need access to the payout when you die. Again, the purpose your whole of life insurance policy will dictate who you entrust and benefit.

Write a will

Firstly, if you haven't done so already, then it is very important that you write your will. A will does more than just allocate your worldly possessions according to your wishes. It also safeguards any children that you may have, ensuring that they are cared for as per your wishes and instructions. A will is usually a key part of putting your affairs in order and planning for the future.

Arrange a trust

Next, you should consider arranging a trust that specifically links to your whole of life insurance policy. A trust is a legal document that can be attached to your life insurance policy to set out who will manage and allocate the funds from a claim (trustees) as well as who should benefit from them (beneficiaries). There may be instances where a trust isn't suitable or a specific type of trust is needed. Trusts can be difficult to change and/or cancel once they are in place but certain types of trusts allow more flexibility than others.

You can read more in our article "Writing your life insurance in trust"

Speaking to a life insurance specialist* will help you to determine the best way to ensure your wishes are carried out while minimising any potential inheritance tax bill. Any funds paid from your life insurance policy through a trust are paid outside of your estate and are not liable for inheritance tax.

If you do not arrange a trust with your whole of life insurance policy, the proceeds of the claim could be added to your estate, increasing its value and the potential inheritance tax payable against it.

Checklist when buying whole of life insurance

Payout amount
  • The amount of money paid out by your life insurance when you die should match what you wish for it to achieve with it.
Funding inheritance tax
  • Have you worked out your IHT bill?
Changing the amount of life insurance
  • Some insurers will allow you to increase or reduce the amount life insurance you have.
Increasing payout conditions
  • In what events will you be able to increase your payout amount without having to answer medical questions again?
Who do you want to benefit?
  • Have you arranged a trust to ensure that the money reaches your intended beneficiaries tax-free and without adding to your estate?
Premium payment
  • You can usually choose to pay annually or monthly by direct debit
Period of payment
  • Some policies become paid up at a certain age while others carry on charging as long as you live.
Type of payment
  • Premiums can be fixed and guaranteed or reviewable. A fixed premium may be more expensive but will provide certainty of cost and affordability. A reviewable premium can be cheaper at the outset but may increase to the point of being unsustainable in the future.
Terminal illness benefit
  • Most good policies include this option which allows the death benefit to be paid early if the insured person has less than 12 months to live.
Later life care options
  • Some policies include this benefit to claim a part of your payout to fund nursing/residential care if needed.
Free life cover
  • Good insurers provide free life insurance whilst your application is being assessed but existing health problems will usually be excluded.
Policy exclusions
  • Some policies may not pay out for suicide in the 1st 12 months of the policy.
  • Other exclusions may be added and will be noted in your policy schedule.

Whole of life insurance cost UK

Online whole of life insurance quotes can be difficult to find and may not provide you with all the options that you require. Often, the rates for whole of life insurance policies via online comparison websites will only show certain types of the policy. Additionally, arranging your trust for your life insurance policy may be difficult via this route as you are likely to need advice that is specific to your circumstances.

When working out what type of whole of life insurance policy to buy and sourcing the best rates for your life insurance, you will usually benefit from speaking to a life insurance specialist*. A specialist life insurance adviser has access to the whole market of insurance companies when sourcing police meaning they are able to check that your need is matched up to the right type of whole of life insurance as the monthly premiums can vary. As well as finding a desirable and affordable monthly premium for your policy, you will need to understand how that cost may change over the years so that you can maintain the policy.

At Money to the Masses we have put LifeSearch through its paces and have found the advisers to be knowledgeable and helpful in arranging life insurance. The advisers are well placed to review your circumstances as well as any life insurance policies that you may already have. You'll also receive up to £100 cashback when you arrange your policies.


If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following links can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch, VouchedFor, Unbiased