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Life insurance helps to protect your beneficiaries – the loved ones you choose to name on the policy – by paying out a lump sum if you pass away during the policy's term.
In general, life insurance only covers you in case of death. You need a different type of income protection – such as critical illness cover – if you want to be protected financially if you become ill or disabled.
There are three main types of life insurance:
Level-term life insurance: Where your insurer pays a lump sum, agreed when you take out the cover, if you die during the policy's term.
Whole-of-life insurance: This covers you for your entire life, with the insurer putting your premiums in a fund until a claim is made. The insurer may increase the premium if the invested fund underperforms, but the amount of cover it pays out remains unchanged.
Mortgage-protection insurance: Also known as decreasing-term insurance, this pays out the outstanding balance on your mortgage at your time of death. If you have mortgage-protection insurance, it's important to review it if you move home or increase your mortgage for any reason.
There's no rule that says you have to have life insurance, but if you have financial commitments that your family would struggle to meet if you died, you may wish to consider it.
Payouts from life insurance companies can help clear the mortgage or pay school or university fees for example. Or it could be used to repay outstanding debts, cover recurring expenses or compensate for your lost income.
It's not just the principal wage earner who needs life insurance, however. If you have young children, losing one half of a couple invariably means higher childcare costs for the remaining parent or a lost source of income. A suitable policy can help remedy this.
Life insurance is less critical for people who have no financial dependents – there's not much point in covering the remaining cost of your mortgage if there's no one else living at the property who is reliant on your income, for example.
There are a few distinct types of life insurance. They offer different levels of cover to suit your needs and life stages. You’ll need to find out about each to work out which type of cover is the best life insurance for you. Some of the most common types are:
This is the simplest life cover insurance, if not the cheapest. You choose the amount of the pay out and length of policy term at the start. It pays out a fixed amount, regardless of when a claim is made, as long as it’s within the term of the policy.
This policy sees the amount of cover decrease over time, although premiums stay the same. It’s usually cheaper than level term insurance. It’s generally the best life insurance to cover debts like mortgages, which reduce over time.
This covers you if you’re seriously ill or are diagnosed with a severe medical condition during the policy’s term - one that might stop you from working but not kill you. In most cases it pays out a fixed lump sum. It can be added to a life insurance policy.
This covers you for your whole life. You pay a premium each month and it pays out a fixed lump sum when you pass away. With whole life insurance, your premiums might increase but the amount of cover you receive will be the same.
This is for people aged 50 to 80 years old. You don’t have to give a medical history. You pay fixed premiums until you’re 85 or 90, depending on the provider, after that premiums end, even though you’re covered until you die.
The cheapest cover is not always the best life insurance. UK's providers offer a variety of policies and the best life insurance is the one that suits your circumstances best.
Start by looking at your debts, your family’s needs and their lifestyle. This will help you work out how much life cover you need and how long you need it for. Once you’ve decided, you can think about doing a life insurance comparison to compare quotes.
Ideally, the amount of cover – known as the sum insured – should be big enough to cover the remaining balance on your mortgage.
Then, there should be enough left over on top to make it easier for your family to cover some of their other expenses when you’re gone.
Think carefully about how the situation might change if you weren’t around. For example, if you work part-time so you can look after your children, what would your partner do if you weren’t around anymore? They might need to pay for childcare, or they might need to work less. Either way, it would affect their financial situation.
The term of your life insurance policy should also be at least as long as your mortgage. This will make sure the payout covers the remaining balance on your mortgage.
The price of your life insurance will depend on factors like:
Your medical history
Your height and weight
Your smoking habits
Your alcohol consumption
The length of the policy you want
How much cover you want
Prices vary from about £5 a month to more than £100 depending on the type of cover you want and your personal situation.
Most of the time, you’ll be covered if you die or are diagnosed with a terminal illness (with a life expectancy of less than 12 months) during the policy’s term.
For example, life insurance polices have been paying out £553,000 a day to Coronavirus victims since the start of the pandemic, according to the Association of British Insurers¹, with one policy delivering £250,00 the day after the insurer was notified of the death.
Even with the best life insurance companies, you usually won’t be covered if you die due to suicide, serious self-injury, a drug overdose or a reckless act. Your cause of death must be covered by the policy if your family is to get a payout.
You also won’t be covered if your payments aren’t up to date. You should read your policy booklet carefully so you understand the terms of conditions of your particular policy.
Your policy payout will come in one of two types, depending on the policy you choose:
1. Lump sum
If you choose a lump sum payout, your loved ones will get the entire amount in one go.
If you die early on in your policy’s term, an income will pay out for the remaining years on the term.
Most people can get life insurance as long as they’re over 18 and live in the UK.
It might be harder to convince life insurance companies to cover you have health issues, or you might have to pay higher premiums. It’s a good idea to get as many quotes as you can from life insurance companies, until you get accepted.
There are also specialist options for older people, where you're more likely to be accepted if you're struggling to find life insurance with a major provider.
You need to make sure you’re as accurate as possible when you answer the questions during your application, and when you compare life insurance. If you don’t answer truthfully, you might find your policy is invalid when you come to make a claim.
Life insurance doesn't cover quite everything. While the exact details vary by policy, there are some common exclusions:
|Covered||Not covered||Possibly covered|
|Accidental death||Pre-agreed conditions||Terminal illness|
|Unexpected illness/disease||Drug and alcohol abuse||Critical illness or injury|
|Heart attacks||Undisclosed health issues|
Life cover insurance is a good thing for all adults to think about having, whatever their age - but there are key times when it's a good idea to either take it out, or review your cover.
Buying a house with a partner - Life insurance can offer both of you reassurance that if the worst should happen, at least the mortgage will be taken care of
Having children - Making sure the little ones are provided for is a key motivation for people taking out cover
Your children leaving home - If your cover id designed to include childcare or school and university fees, it might be time to look again when your children leave home
Paying off your mortgage - If your life cover is tied to your home loan, then reviewing it when you pay this off
Yes, but it might be cheaper to have one policy that provides the exact cover you need.
Yes, but you may find it more difficult and expensive to get cover.
Life is uncertain and anything can happen. We should be prepared for the worst, just in case. The best life insurance can give you peace of mind, because it will give your loved ones a payout if you die during the policy’s term. But don't go just go for the cheapest option – find the best cover for your circumstances and your family's needs.”Joel Kempson, Life Insurance Expert
By comparing life insurance, you could save money on the policy. The best value life insurance will offer the cover to you and your family. Choose a life cover plan from one of the best UK life insurance companies and see the online discounts they offer.
We have always aimed to provide the best possible services to bridge the gap between our users and our clients. Over the years, we have been thrilled to be recognised by various prestigious bodies and organisations for those efforts.
Last updated: 8 May 2022