Whole of life insurance calculator

What whole of life insurance is

Whole of life insurance pays a lump sum whenever you die, as long as you keep up the premiums.⁹ Term insurance is different: it only pays if you die within a set number of years. Because a whole of life policy is certain to pay out, it costs more than term cover for the same amount.

People mostly buy it for one job: to leave a sum that pays the inheritance tax on their estate. Your family can then keep the house or the investments instead of selling them to pay HMRC.¹⁰

How the inheritance tax sum works

Inheritance tax is charged at 40% on the part of an estate above the tax-free allowances.¹ Everyone has a nil-rate band of £325,000. If your home goes to your children or grandchildren, you also get a residence nil-rate band of up to £175,000, which we call the home allowance.² The home allowance can't be more than the value of the home.⁴

With the example figures, a married couple leave an estate of £1,200,000, including a £500,000 home that goes to their children. On the second death the estate has two nil-rate bands (£650,000) and two home allowances (£350,000), so £1,000,000 is tax-free. The other £200,000 is taxed at 40%, a bill of £80,000. A whole of life policy for £80,000 would pay it.

Married couples and civil partners

Anything you leave to your husband, wife or civil partner is free of inheritance tax, and any allowance you don't use passes to them.¹ That means the surviving partner can have up to £650,000 of nil-rate band⁵ and up to £350,000 of home allowance⁶, up to £1 million in all.¹⁰ The calculator assumes the first of you to die leaves everything to the other and uses none of the allowances. If the first of you leaves money to anyone else, less allowance passes on and the bill could be higher.

Estates over £2 million

The home allowance falls by £1 for every £2 the estate is worth over £2 million.³ An estate of £2,200,000 loses £100,000 of it. A single person loses the whole allowance at £2,350,000, and a couple at £2,700,000. The £2 million test uses the estate's value before any exemptions or reliefs.⁴

Pensions from April 2027

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count as part of the estate. Death in service benefits are left out.⁷ If an estate is already over the allowances, a £300,000 pension pot left unspent adds £120,000 or more to the bill. Add any pension you don't expect to spend.

Thresholds are frozen until 2031

The £325,000 nil-rate band hasn't changed since April 2009.² The government has fixed it, the £175,000 home allowance and the £2 million taper for every tax year up to and including 2030 to 2031.³ If house prices and investments keep rising while the allowances stay put, more of your estate becomes taxable. Nobody knows what the thresholds will be after 5 April 2031.

Allowances at a glance

Fixed until 5 April 2031. The home allowance only applies if your home goes to children, grandchildren or other direct descendants, and is capped at the home's value.^{3, 4}

What the calculator leaves out

It gives an estimate, not tax advice. It doesn't include:

• gifts made in the 7 years before death, which can use up the nil-rate band
• business relief and agricultural relief, which can take 50% or 100% off qualifying assets
• the reduced rate of 36% when you leave 10% or more of the net estate to charity¹
• other exemptions and reliefs, trusts you've already set up, and assets held overseas.

If any of these apply, a solicitor or tax adviser can work out the exact bill.

Write the policy in trust

If the payout goes into your estate, it's taxed along with everything else, and your family could lose 40% of it. Written in trust, the money goes straight to the trustees you name, stays outside your estate and doesn't have to wait for probate.⁹ This also helps with timing. Inheritance tax is due by the end of the sixth month after death, and some of it usually has to be paid before probate is granted.⁸ A policy in trust can pay the bill before the estate is released. Most insurers provide a trust form at no cost.

Joint life, second death

Couples often choose a joint policy that pays out when the second of you dies. That's when the bill usually arrives, because everything left to a spouse or civil partner is tax-free. A second death policy covers two lives but pays once, and it usually costs less than two single policies. For a couple, enter the younger partner's age and pick a "live to" age for the second death.

Guaranteed or reviewable premiums

With guaranteed premiums, the price is fixed when you start and doesn't change. A guaranteed premium costs more at the start, but you know what you'll pay for the rest of your life. With reviewable premiums, the insurer checks the price every 5 or 10 years and can raise it. They start cheaper but can rise to a level you can't keep paying.⁹ If you stop, the cover ends and you get nothing back. The premium part of the calculator assumes a flat premium, so for a reviewable policy treat the total as the least you'd pay.

Will you pay in more than it pays out?

With the example figures, £200 a month from age 55 to 90 comes to £84,000. The premiums pass the £80,000 of cover at age 88. Die before then and the policy pays out more than it cost; live longer and it pays out less.⁹ The "live to" age is only a choice for the sum. Try a few ages to see the range.

Some policies stop taking premiums at 90 or 100 while the cover carries on. That caps what you'd pay if you live a long time, but those policies usually cost more each month. Set "premiums payable" to match your quote.

Over 50s plans are a different product

Over 50s life insurance is also a whole of life policy, but it's built for small sums, usually to help with a funeral. There are usually no health questions, the payout is often a few thousand pounds, and it's limited if you die in the first year or two. It won't cover a six-figure tax bill. See our over 50s life insurance calculator for those plans.