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Key takeaways
- Life insurance pays out if you die, to protect people who rely on you
- Term insurance is generally cheaper than whole of life
- Work out your needs from debts, income and existing cover
- Be honest on the application and consider writing the policy in trust
- Compare policies and keep them under review
Life insurance pays out a sum of money if you die, or in some cases if you are diagnosed with a terminal illness. It is designed to protect the people who depend on you financially. Not everyone needs it, and what you need depends on your circumstances. This guide explains the main types of cover, how to work out how much you might want, what affects the price and how to avoid common pitfalls.
Who might need life insurance?
You might consider cover if other people would face financial hardship if you died. For example:
- You have a partner or children who rely on your income
- You have a mortgage or other debts, especially jointly with someone else
- You care for a relative
- You run a business with others
If nobody depends on your income and you have no debts that would pass to others, you may not need it. Some employers offer "death in service" benefit, usually a multiple of your salary, so check what you already have before buying more. Also check whether your pension scheme provides benefits for dependants.
Main types of cover
Term life insurance
Pays out if you die within a fixed period, such as 20 or 25 years. If you outlive the term, there is no payout. It is generally the cheapest type of cover for the amount of protection, and the most common.
- Level term: the sum insured stays the same. It suits needs such as replacing income or paying off an interest-only mortgage.
- Decreasing term: the sum insured reduces over time. It is often used with a repayment mortgage, since the amount owed goes down. It is usually cheaper than level cover.
- Increasing term: the sum insured rises, often with inflation, to maintain its value.
- Family income benefit: instead of a lump sum, pays a regular income until the end of the term.
Whole of life insurance
Pays out whenever you die, as long as you keep paying premiums. Because a payout is guaranteed, it costs more. People often use it to cover inheritance tax or to leave an inheritance. Some policies have premiums that are reviewed and can increase, so understand the terms.
Other related policies
- Joint life: covers two people and pays out on the first death. It is often cheaper than two single policies, but only one claim is possible.
- Critical illness cover: pays out on diagnosis of certain serious illnesses. It is separate, and often added to life cover. See income protection vs critical illness.
- Over-50s plans: guaranteed acceptance plans with small payouts. They can be poor value, since you may pay more than the amount paid out, so compare alternatives first.
How much cover might you need?
There is no single right amount. You could consider:
- Debts: the outstanding mortgage, loans and credit cards
- Income replacement: the number of years your dependants would need support
- Future costs: children's education, childcare or care for a relative
- Funeral costs
- Existing cover: death in service, savings, pensions and other assets
A rough method is to add up the debts and the income needed over time, then subtract what you already have. Be realistic about what you can afford in premiums and review your cover when your circumstances change, for example after a new baby, a new mortgage or a change of job.
What affects the price?
- Age: younger applicants pay less
- Health and medical history
- Smoking status: smokers pay much more, and "smoker" often includes vaping and nicotine replacement
- Occupation and lifestyle: hazardous jobs or hobbies
- Amount of cover and term length
- Type of cover
- Family medical history in some cases
Premiums are normally fixed for the length of the policy if they are guaranteed, but some are reviewable. Check which applies. The sooner you buy, the lower the premium tends to be, but do not buy more than you need.
Be honest on the application
You must answer health and lifestyle questions fully and truthfully. If you withhold information or make mistakes, the insurer could reduce or refuse a claim. Under the Consumer Insurance (Disclosure and Representations) Act 2012, the insurer's response depends on whether the misrepresentation was careless or deliberate. Give honest, complete answers, and keep a copy of your application.
Writing a policy in trust
If you put the policy into a trust, the payout can go directly to your beneficiaries, normally without waiting for probate, and may sit outside your estate for inheritance tax. Many insurers offer free trust forms. It is often a good idea, but it is a legal arrangement, so read the paperwork, and consider independent legal advice for complex estates.
Choosing a policy
- Decide what you need and how long for.
- Compare policies. You can use a broker, which may offer advice and compare the market, or you can go direct to insurers.
- Check the insurer is authorised by the Financial Conduct Authority and read the key features.
- Check exclusions. Most life policies exclude death by suicide in the first year, for example.
- Check whether the premium is guaranteed or reviewable.
- Consider adding a trust.
- Keep your documents safe and tell your beneficiaries where they are.
Avoid these mistakes
- Cancelling cover without a replacement, especially if your health has changed
- Paying for cover you do not need or too much
- Forgetting to update beneficiaries or the trust
- Ignoring the gaps. Life cover does not protect you if you are unable to work. See income protection vs critical illness.
- Buying under pressure. Take your time to compare.
If you need to claim
Your family or executors should contact the insurer, provide the death certificate and policy details, and follow the claims process. If your policy is in trust, claims can be quicker. For general claims tips, see how to make an insurance claim. Unclaimed policies may be traced through the Unclaimed Assets Register or by contacting the insurer.
Frequently asked questions
Do I need life insurance if I have a mortgage?
Is life insurance taxable?
Can I get life insurance with a health condition?
What happens if I stop paying premiums?
Sources and further reading
- Life insurance — MoneyHelper
- Consumer help and guidance — Financial Conduct Authority
- Inheritance Tax — GOV.UK
This page provides general information only. It is not personalised financial, legal or tax advice, and rules and figures can change. Your situation is unique — please check official sources such as GOV.UK and MoneyHelper, and speak to a qualified, FCA-authorised adviser before making important decisions about your money.
Written by
MoneyBrink Editorial Team — Editorial team
The MoneyBrink Editorial Team researches, writes and reviews every guide on this site. We work from official UK sources such as GOV.UK, the Financial Conduct Authority, MoneyHelper and the Money and Pensions Service, explain things in plain English, and update articles when the rules change. We do not sell financial products and we do not give personal advice.
Read how we research and check our guides in our editorial policy.
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