They say nothing is certain but death and taxes. And while neither is fun to think about, you can’t ignore them, either. Taking out life insurance can give you peace of mind that your loved ones won’t be left financially stranded if you die, but it can – in some cases – even minimise any inheritance tax bills. Our guide explains how to compare policies so you pick the right one for your family.
What is life insurance?
Life insurance is a type of protection insurance. When you die, it can pay out a lump sum to your loved ones. This can be used to clear any big debts, such as a mortgage, and cover the ongoing cost of living expenses and bills.
How does life insurance work?
When you take out life insurance, you agree the amount of cover you want and those you want to receive the benefits. If you die within the term covered by your life insurance, the beneficiaries will receive a lump sum payout.
Whether your loved ones are guaranteed to receive a payment on your death depends on whether you’ve taken out a whole of life or term policy (keep reading for more on what these mean). With the latter, you can also choose whether the payment is set at a fixed amount, or whether the amount they’ll get decreases over the term of the policy (to account for your mortgage debt going down over time, for example).
What are the main types of life insurance?
There are 2 main types of life insurance cover:
Term life insurance
Term life insurance is probably the most common form of life insurance cover. Term insurance is life insurance that lasts for a fixed period or term. If you pass away within the policy term, then your insurance company will pay a lump sum to your dependants. However, if you don’t pass away during the policy, then it lapses and you will no longer be covered, nor will you receive any form of payment.
Term life insurance could be for you if: Your loved ones won’t need the payout as much after a certain point – for example, after your mortgage has been paid off, or your kids have grown up and flown the nest.
Whole-of-life cover
Whole-of-life cover offers insurance protection for your entire life. This means your insurance provider will pay out in the event of your death whenever it occurs. This type of life insurance will have much higher premiums than term insurance. That’s because, unless you cancel your policy or fall foul of one of the exclusions that could invalidate it, the provider will have to pay out sooner or later. Although whole-of-life insurance is not as popular as term life insurance, many find it useful to combat inheritance tax.
Whole-of-life-cover could be for you if: You want the payout to cover ongoing bills and costs of living for your beneficiaries. If the life insurance policy is written into trust, this could also help your loved ones manage inheritance tax bills.
What types of term life insurance policy can I get?
There are a number of different life insurance policies out there, so you will need to decide which one is the right one for you. Maybe you’ve just got yourself a hefty mortgage and you’re looking for life insurance while you pay it back, or you’ve just had your first child and you’re looking for life insurance while they are financially dependent on you. Well, you’re in luck. There are a whole host of different term life insurance policies to suit your individual needs.
Level term. This is a standard term policy. Your policy will stay the same throughout its term, meaning that both your premiums will stay the same, as will the payout if you die within the term. This type of policy tends to be a popular choice for those with a mortgage, and many people will take out life insurance to coincide with the term of the mortgage (usually 25 years). It means that in the event of your death, your loved ones won’t struggle to meet mortgage repayments or be forced to move.
Increasing term. This type of policy (also known as an index-linked policy) combats the expected rise in living costs. This means your cover increases slightly every year in line with the retail price index (RPI) or a fixed amount. While this is a good way of protecting your lump sum against increased living costs, it also means that your premiums will increase too.
Decreasing term. With this policy, your cover will gradually decrease over time, as will your premiums. This policy is a popular choice if you only want life insurance to cover a mortgage or other debt that gradually reduces over time.
Joint term insurance. This is a shared policy between spouses or partners. It could potentially save you some money, given that you would only pay 1 premium between the 2 of you. However, it is important to understand that, typically, when the first policyholder dies, the lump sum will be paid out and the other policyholder will no longer be insured.
Family income benefit. This is a type of decreasing term insurance that offers an income rather than a lump sum. If the policyholder dies within a fixed period, then the dependants receive an annual tax-free income payment for the remainder of the policy term. For example, if you had this policy for 25 years and passed away after 20 years, your dependants would be paid an annual income for 5 years.
What types of whole-of-life insurance policy can I get?
While you might come across several different names for types of whole-of-life insurance, these broadly break down into 2 broad categories.
Balanced cover. Your premiums stay the same throughout your policy, and the amount that is paid on your death is also fixed.
Maximum cover. Your cover is linked to an investment fund, in which your premiums are invested. The idea is that the investment returns should be enough to provide the eventual payout amount requested at the outset. Premiums will be reviewed periodically to make sure the investments are performing as they need to. If not, the insurer may increase your monthly premiums or reduce the size of the payout. Depending on the details of the policy, there may or may not be a guaranteed minimum payout, so make sure you’re clear about this upfront.
Do I need life insurance?
First things first: If you don’t have any dependants, life insurance isn’t essential, as its primary purpose is to ensure that those you leave behind have financial support. That said, there may be occasions when whole-of-life insurance can be a useful estate-planning tool.
However, if you have loved ones that would be put under financial stress if you were suddenly not around to provide a steady income, then you should give serious consideration to taking out life insurance cover.
Whether it’s the birth of your first child or the purchase of your first home with your partner, the moment that others become financially dependent on you is the moment you should consider taking out life cover.
Significant life events that may prompt you to take out life insurance include:
Getting married
Buying or upgrading to a new home
Taking out a mortgage
The birth of a child
Change in your personal health
What does life insurance cover?
Despite the slightly complex choices you need to make about the type of policy, at its heart, life insurance cover is fairly simple. It usually only pays out for 1 event: the policyholder’s death. A rare exception to this is if the policyholder receives a terminal illness diagnosis that gives them less than 12 months to live, in which case the policy may pay out early.
Most common causes of death are covered, including unexpected illness or disease, cancer, heart attack or accidental death.
In most cases, death as the result of suicide or intentional self-inflicted injury will also be covered, though this is typically excluded if it happens within 12 months of taking out or renewing your policy.
What does life insurance not cover?
Insurance providers have rules and guidelines surrounding when they will and won’t pay out. Make sure you read through your specific life insurance policy documents and understand the insurers rules and regulations surrounding claims and payments. As standard, most policies won’t pay out in the event of death caused by the following:
Pre-existing conditions that were not declared at the outset
Drug or alcohol abuse
War or terrorism
Gross negligence or reckless behaviour
Dangerous activities, such as high-risk sports
Death as the result of suicide or intentional self-inflicted injury within first 12 months of policy term
Bear in mind that life insurance only pays out for death or, in some cases, a terminal diagnoses. It won’t pay out if, for example, you’re unable to work due to illness or injury. For that, you’ll need critical illness or income protection insurance.
What is the best type of life insurance cover for me?
The right type of life insurance will depend entirely on your personal circumstances, including:
Your family status, such as whether you have children or other dependants, and how old they are
Any mortgages or other debt you hold
Your likely inheritance tax liability
Whether you only want the payout to cover debts, or to cover ongoing living costs
Life insurance isn’t cheap, so it’s a decision that shouldn’t be rushed. Take your time to consider your options and assess life insurance quotes. If you’re not certain what you need or how to find the best cover, we’d recommend speaking to a life insurance adviser.
Are there any alternatives to life insurance?
While there’s no like-for-like equivalent for life insurance, there are some forms of protection cover that could be worth considering, depending on your circumstances.
Over 50s plans. These are a very basic form of life insurance. If you’re over 50, you can get cover without having to answer any questions about your health or lifestyle, and there’s a guaranteed lump-sum payment whenever you die. This may be dependent on you having paid into the policy for a minimum amount of time. However, the maximum payment is usually much smaller than standard life insurance payouts, and you may end up paying more in premiums than the payout is worth.
Funeral plans. These are effectively schemes that allow you to pay upfront for your funeral, either as a lump sum or via monthly instalments, to take this stress away from loved ones at a difficult time.
Critical illness cover. This insurance offers a lump sum payment if you are seriously injured or diagnosed with a critical illness. Critical illness cover can often be bought as an add-on to life insurance.
Income protection insurance. If you lose your job through no fault of your own, or are unable to work through injury or illness, income protection pays you an agreed portion of your salary each month.
How much life insurance cover do I need?
As with the type of cover you need, this will depend on your personal circumstances. The higher the level of cover, the higher the premiums are likely to be.
One rule of thumb is to get cover for 10-12 times your annual income. Alternatively, you may simply want to get enough to at least cover your existing debts.
If you’ve just taken out a mortgage or have young children that will need ongoing support for their education and living costs, you may need to get a larger life insurance policy than someone who has paid off their house and whose children are living independently.
Many people are prompted to take out life insurance by a major life event, such as taking out a mortgage or having a baby.
However, typically, your monthly premiums will be lower the younger you are when you take out insurance, since younger people are more likely to be healthy and less likely to claim any time soon.
Obviously, the earlier you take out life insurance, the longer you may end up paying premiums (depending on the term you opt for), and the costs will still add up over time. But, particularly if you opt for a policy where the premiums stay the same, it could help ensure your premiums are affordable on a month-to-month basis – and could still work out cheaper overall than waiting till later in life to take out a policy. And, of course, you’ll be covered should the worst happen far earlier in life than is expected.
How does my age affect life insurance?
The younger you are when you take out a policy, the cheaper the monthly premiums will be, as our example below shows.
We ran life insurance quotes for a fictional, non-smoking, 30-year-old woman – let’s call her Martha – with no health conditions. She was after a level term life insurance policy that would last until she retired, aged 65 (we’re still optimistic that some of us may get to retire so early).
We then ran the same quote assuming Martha waited to take out a policy until she was 40, still wanting it to last until age 65. We changed no other details.
Age 30
Age 40
Cheapest monthly premium (£)
£8.23
£11.53
Term (years)
35
25
Total cost of cover (£)
£288.05
£288.25
As you can see, by the end of the term Martha would pay about the same in total premiums regardless of whether she took the policy out at age 30 or 40. In addition, by taking it out earlier, she’d have the extra reassurance of knowing that her family was financially protected if she died young and they suddenly lost her income.
MUST READ: Review your policy regularly
Once you have cover in place, you should review your policy regularly to ensure you are not overinsured or underinsured. Events that can affect your policy include the following:
Marriage or divorce
Buying a new home
Children moving out or becoming financially independent
Retirement
Changes in health
Most advisers recommend that you review your life insurance policy at least once every 12 months. There may be a better-priced and/or more suitable option available.
Can I get life insurance if I have a pre-existing medical condition?
Almost certainly. However, depending on the nature of the condition, it could mean that life insurers see you as a higher risk. If so, you may find that:
Fewer insurers are willing to offer you cover.
The premiums quoted by those that will offer cover are likely to be higher than for someone with no pre-existing conditions.
If your condition puts you into a high-risk category – for example, if you’ve already had a heart attack – you may find that some insurers will only offer you policies that exclude death from a heart attack.
Don’t be tempted not to declare any pre-existing conditions in a bid to keep premiums down. If you don’t, and the insurer finds out when your loved ones need to claim, not only will that specific condition be excluded, but your cover may be completely invalidated.
The generally higher premiums incurred by those with pre-existing medical conditions makes it even more important to shop around to make sure you get the right cover at the best price.
Does life insurance always pay out?
Life insurance will pay out within the term covered by the policy, provided that you:
Don’t cancel your policy. If you do, all the premiums you’ve already paid will be rendered pointless.
Don’t die from a condition that’s excluded from cover. For example, suicide within a year of taking out a policy, or a pre-existing condition that you’ve agreed to be excluded.
Keep up your premium payments throughout the term.
According to the Association of British Insurers (ABI), 98% of life insurance claims made in 2020 were paid.
What happens if I stop paying my life insurance premiums?
If you completely stop paying your life insurance premiums before the date agreed in your policy, you will no longer be covered and your beneficiaries won’t receive a payout.
If you miss a payment or 2, what will happen depends on the terms of your policy.
Some providers will stop cover as soon as you miss a payment.
Other providers will give you a fixed grace period to make up the missed payment.
If you’ve taken out a waiver of premium, this may give you cover for any missed payments.
If you know in advance that you will struggle to make a payment, perhaps because of short term employment issues, get in touch with your insurer as soon as possible. Some may be willing to offer a payment holiday, usually provided that you pay back the sum of all missed premiums by an agreed date.
What is a waiver of premium?
A waiver of premium is an extra element of cover that you can add on, for a fee, when you first buy your life insurance policy. It will cover your monthly payments for a period if you’re unable to keep up with them due to work issues or illness.
You can only add it on at the start of your policy, not further down the line.
Do I have to pay whole-of-life premiums until the day I die?
Not always. Some whole-of-life policies only require you to pay premiums up to a certain age, typically 90. However, this will vary between insurers and policies, so (as always) check the small print before taking out a policy.
How do I buy life insurance?
You can buy life insurance in a few different ways. The best option for you will depend on how certain you are about the cover you need.
Directly from insurers. You can either go to life insurance providers directly to get quotes, or compare options first using a price comparison site. Bear in mind that price comparison sites typically won’t compare every life insurer on the market.
Via an online insurance broker. These may be able to offer cheaper prices than traditional financial advisers as they pay back to you some or all of the commission they receive from insurers.
Via a traditional financial adviser. If you’re not sure what kind of life insurance policy you need, or even whether you need life insurance and/or another form of protection insurance, then speaking to a financial adviser could be a good bet. They’ll be able to take all of your circumstances into account and advise you on the best options, as well as recommending and helping you purchase specific policies.
What information do I need to get a quote?
If you know exactly what type of life insurance you’re looking for, it can be pretty speedy to get a quote. You’ll need to give:
Your name
Your date of birth
Whether you currently or have ever smoked
How long you want cover for
How much cover you want
The type of cover you want (for example, level or decreasing)
If you want to add any joint policyholders
You may also be asked for your contact details and if you want to add critical illness cover to the policy.
What features or optional extensions should I look out for?
Before you purchase your life insurance, it’s worth considering any additional features you’re able to add to your policy. Take a look at some of these additional benefits:
Critical illness cover. If you are diagnosed with a critical illness and unable to work, then this benefit would allow you to claim your lump-sum payment. However, most insurance providers will usually only pay out once, so if you receive a payout for critical illness, your dependants would not receive another lump sum after your death.
Terminal illness benefit. If you are diagnosed as terminally ill and are expected to pass away within 12 months, then this benefit entitles you to make a claim for your life insurance in advance. This is usually included within most life insurance policies.
Premium waiver. In circumstances where you become seriously ill or disabled and are unable to work, this benefit allows your insurance provider to relinquish your obligation to pay regular premiums.
Increasing cover. This enables you to increase your cover without any further medical evidence. You may want to increase your cover due to the birth of a child or if you’re moving to a larger property.
Critical illness cover is a type of insurance that pays out a lump sum if you are unable to work as a result of a long-term serious illness. It’s not designed for short-term illnesses, which should be covered by sick pay. Illnesses covered vary by insurer, but typically include cancer, heart attack, stroke, organ failure, Alzheimer’s disease, Multiple Sclerosis and Parkinson’s disease.
Critical illness cover is often sold alongside life insurance. When you get a life insurance quote, you may be asked if you also want critical illness protection.
Should I take out critical illness cover?
As with any insurance, it’s your call. But it’s certainly worth considering adding on critical illness cover if you’re taking out life insurance, as it offers that extra bit of reassurance that big debts and/or living costs will be covered if you are ill and unable to work. Find out more in our full guide to critical illness cover.
My employer offers life insurance – do I need to get extra cover?
This is a tricky one. If your employer offers life insurance that will pay out a sufficient sum to meet your loved ones’ needs if you die, then you may feel you don’t need a separate life insurance policy.
But bear in mind that while death (at some point) is certain, employment is not. If you change employer, there’s no guarantee they’ll offer a life insurance policy that meets your needs, or offer it at all.
How much does life insurance cost?
The cost of your policy will vary based on a number of factors.
When we ran quotes for a 30-year-old non-smoking woman with no pre-existing medical conditions, the cheapest monthly premium for a level term insurance policy lasting until age 65 was just £8.23 a month, based on £200,00 of cover. This rose to £11.53 a month for a 40-year-old woman. Factors that are likely to push premiums up include:
Opting for whole-of-life policy rather than term life insurance
Rising age
Being a smoker
Having pre-existing medical conditions
How can I save on my life insurance policy?
There are a few simple tricks that may end up saving you a great deal of money on your life insurance policy. Check them out below:
Don’t delay buying cover. The younger you are when you buy, the cheaper your premiums are likely to be.
Determine an appropriate level of cover. Consider your current financial obligations and how long you are likely to require cover to determine an adequate amount of insurance. You may find that a cheaper policy with fewer features is sufficient for your situation.
Review existing cover. You may already have some cover via your employer, or it may be included in other insurance products. Assess what is already in place and see if you need to upgrade.
Live a healthier lifestyle. Pre-existing medical conditions, smoking, alcohol consumption and obesity can all drive up your premiums – smokers usually pay double compared to non-smokers. Live a healthy lifestyle and be rewarded with lower premiums.
Speak with an insurance adviser. An adviser can use their knowledge of the market to help you find competitively priced cover.
Combine policies. Some insurers offer multi-policy discounts if you take out cover for your spouse or child, or if you take out other types of personal insurance with their company.
Shop around. No insurance buying advice would be complete without this essential tip. Life insurance premiums can vary significantly between providers.
Bottom line
If you have dependants that rely on you financially, taking out life insurance can make sure they can continue to count on you even after you die. There are several types available and choices to make, so it’s worth taking time to think about what you – and they – really need, comparing all your options, and taking financial advice if you need it. Don’t leave the final decision too long, though. It’s never too early to get the right cover and the younger you are when you take out a policy, the cheaper your premiums will be.
How can we help you get the right life insurance cover?
Speak to an expert adviser
Talk to a fee-free life insurance adviser from our partner ActiveQuote. Call free (mobile or landline).
The insurance payout will go to the people you listed as beneficiaries on your policy, which is generally your family or loved ones.
Most life insurance premiums are paid on a monthly basis until the end of the insurance term (or until you die, or reach a certain age, in the case of whole-of-life insurance), or until you decide you no longer want cover.
Yes, you are free to have more than 1 life insurance policy at any time, and this is often a strategy used by people that already have some cover – with their employer, for example – but want extra insurance following an important life event. Bear in mind that you’ll have to pay the ongoing costs of all your insurance policies, which can be very expensive.
It’s certainly not a legal requirement, and many mortgage providers won’t insist on it. However, you may find some that make it a lending condition or recommend that you have it. If so, you don’t need to have life insurance that’s on offer from your mortgage provider; always shop around for the best option for your needs.
Putting your life insurance in trust is a legal arrangement that ringfences the eventual life insurance payment from any inheritance tax liability, as the payout will no longer form part of your estate. Because it’s not part of your estate, the payment can be made by the trustees to your beneficiaries immediately after your death, without waiting for the often time-consuming process of administering your estate (known as probate). Putting life insurance in trust is more likely with a whole-of-life policy.
Possibly, depending on the provider. Some may have maximum age limits to buy a policy of 70, while others may cap it at 90.
Choosing the right option
This will depend on your specific needs, but the best life insurance is generally one that offers an adequate level of cover for as long as you need it while still being affordable.
Not necessarily, although whole-of-life insurance offers cover for your entire life, where term insurance only covers you for a certain period of time. It is often more expensive than term insurance, but offers certainty in terms of cover and can help negate inheritance tax.
If you expect to need life insurance at some point – for example, if you’re planning a family – then getting it while you’re young will mean you’ll pay cheaper premiums. You could even end up paying less overall than taking it out for a shorter period later in life.
It depends on your circumstances and what you need the life insurance for. In the past, when retirement ages were fixed at 60 for women and 65 for men, most people aimed to have their mortgages paid off by this age. These days, everything’s a bit more fluid. You may hold a mortgage past the age of 65. Or, if you had kids later in life, you may still be paying for their education after this age. So it doesn’t go without saying that your dependants’ need for the support that life insurance offers will vanish after the age of 65. Plus, if you’ve taken out a whole-of-life policy, it’ll help with ongoing living costs. And if you’ve written it into trust, it could help mitigate inheritance tax bills too.
Yes, and if you’re jointly responsible for repaying mortgages and other debts, or paying for your family’s living costs and children’s education, it could be wise for you both to have cover. Joint life insurance is likely to be cheaper than you each taking out your own policies. Typically, the full lump sum will be paid out to the surviving partner on the death of the other. Find out more about the pros and cons in our full joint life insurance guide.
Adjusting your policy
This will depend on your provider and the type of policy you have, but you may be able to change the size or length of your life insurance policy. You can also change the beneficiaries listed in your policy.
Yes, you are generally free to cancel your life insurance policy at any time. However, once you cancel, you will no longer be covered, regardless of how long you had cover.
Making a claim
In the event of your death, your family will need to contact your life insurance provider to begin the claim process. They will generally need to complete a claim form, and once it has been approved, they will then receive the insurance payout.
Some providers will pay out a life insurance policy early if you are diagnosed with a terminal illness. However, your family would then not receive any further payout when you die.
If you die from a terminal illness during the term of your policy, it will pay out to your loved ones as normal. If you receive a diagnosis that gives you less than a certain period to live (a year is typical), some insurers will pay out early to help you and your loved ones cope.
If your family member has died and you are unsure if they had life insurance, there are a number of ways you can find out. You can check their bank statements for an ongoing insurance payments, or check any documents they left behind. Some companies offer services that help identify unclaimed insurance policies, though you may need to pay a fee.
Provided death occurs within the term covered by the policy and you were honest when you filled in the questionnaire, the only deaths that will typically be excluded are:
Death from suicide or intentional self-harm within the first 12 months of taking out a policy
Death as the result of reckless or dangerous behaviour
Death due to alcohol or drug abuse
Death from pre-existing conditions that you have agreed to exclude from cover
If you don’t die before the agreed end date for term life insurance, your policy will lapse by default and your beneficiaries won’t be eligible for a payout. Some insurers may allow you to extend to the term or convert a term policy to a whole-of-life policy (for a fee, of course).
The offers compared on this page are chosen from a range of products we can track; we don't cover every product on the market...yet. Unless we've indicated otherwise, products are shown in no particular order or ranking. The terms "best", "top", "cheap" (and variations), aren't product ratings, although we always explain what's great about a product when we highlight it; this is subject to our terms of use. When making a big financial decision, it's wise to consider getting independent financial advice, and always consider your own financial circumstances when comparing products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Ceri Stanaway is a researcher, writer and editor with more than 15 years’ experience, including a long stint at independent publisher Which?. She’s helped people find the best products and services, and avoid the pitfalls, across topics ranging from broadband to insurance. Outside of work, you can often find her sampling the fares in local cafes. See full bio
In your 50s and looking for life insurance? We explain how you can find an affordable but quality policy.
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