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Life insurance
The types of cover that can help to protect your family's finances
Updated 5 November 2024
Thinking about how your family would cope financially if you were to die isn't the easiest topic, but it's an important one, as roughly one child per school class may lose a parent before they're 16. This guide helps to explain why you should get life insurance, the different types, and shows you how to find the cheapest policy that meets your needs.
- Looking for life insurance but have a pre-existing medical condition? See our life insurance with a pre-existing medical condition guide.
- Over-50s' life insurance? Why you should be wary of it. See our Over-50s' life insurance guide.
What is life insurance?
Life insurance is designed to provide financial support to those you leave behind. You pay a monthly premium to your insurer, and if you die during the policy term, your beneficiaries will get either a tax-free lump sum – though you may need to factor in any inheritance tax – or regular monthly payments.
In short, life insurance is to help give you peace of mind that your family or other dependants will not be burdened with financial struggles if you die.
Benefits of life insurance
Life insurance is a way to ensure those left behind can continue to pay the bills and other essentials. This could include:
- Mortgage costs – to pay off, or pay towards, any outstanding mortgage debt.
- Debts and loans – to clear other outstanding borrowing, such as loans.
- Funeral costs – such as burial and other associated costs.
- Future living costs and expenses – such as rent payments and bills.
- Educational costs – such as school fees or money towards further education.
If you already know what type of life insurance you want, skip down to find out how to buy life insurance the cheapest way.
What are the different types of life insurance?
There are many different types of life insurance. Here we list the various policies available to help you assess which type of cover is likely best for your needs.
Level-term life insurance
Level-term is the simplest type of life insurance. When you take out a policy, you determine the 'level' at which you'd want it to pay out – ie £200,000. You also choose the 'term', in years, that you want the cover to last – ie 25 years. The cover will remain fixed at the same amount for the duration of the policy.
The more cover you get and the longer the term you want, the more it costs. You'll pay a monthly premium which continues until the policy either pays out (if you were to die during the term), or the term ends. You usually can't remain covered past the age of 80, though this varies.
Decreasing-term life insurance
Also known as 'mortgage life insurance', decreasing-term life insurance is designed to cover your mortgage if you were to die during the term. As your mortgage debt usually reduces each year, the amount that would be paid out if you were to die decreases in line with your mortgage balance.
As the possible pay out amount reduces each year, it's often a cheaper option than level-term. However, if you want to leave a lump sum for your dependants to cover other debts and ongoing spending, a level-term life insurance policy is likely to be a better option (though you can have both).
Over-50s' life insurance
This is aimed at the older adults who may be priced out of trying to buy a traditional life insurance policy – where they work out if they'll accept you and how much you'd pay based on a number of factors, including your age and health.
An over-50s' policy offers guaranteed acceptance up to age 80 or 85, even if you have a medical condition. Yet this type of cover can work out expensive as you have to keep paying in until you die, so your beneficiaries could get back less than you pay in. See our Over-50s' Life Insurance guide for more.
Family income benefit
This provides a monthly tax-free payment for the length of the policy term, eg, £10,000 a year for 10 years. So if you died five years into the policy, your dependents would receive just over £800 a month for each of the remaining five years.
As the yearly amount doesn't roll over, the longer you live, the less the insurer has to pay out, so policies tend to be cheaper than level-term.
Whole-of-life insurance
Unlike level-term – which runs for a set length of time and usually alongside a mortgage – this type of cover runs until you die.
These are often (but not always) investment-linked life insurance policies, mainly used to mitigate inheritance tax. In other words, the payout amount should cover the inheritance tax bill on death, and the policy runs out when you die, instead of after a fixed time.
They are usually expensive and you could still be paying for this policy even after your mortgage (or other) debt has cleared.
Joint life insurance
Also known as 'couples insurance', 'partners insurance' or 'first-to-die' life insurance. Both level-term life insurance and decreasing-term life insurance policies can be taken out to cover you and your partner, as a joint policy.
A joint life insurance policy is often cheaper than taking out two single policies, however it generally only provides one payout – usually on the death of the first policyholder – when the cover then stops.
That means joint life insurance is usually best suited if your partner is your only dependant, and there'd be no one else (children, for example) to leave a second payout to.
Do I need life insurance?
This is something every parent, partner, or someone with dependants should consider. If anyone relies on your income and would struggle without you around, life insurance can be a way to ensure they have a financial lifeline when you're gone.
While life insurance is not compulsory, don't be surprised if your mortgage provider insists you have a policy in place before they release any mortgage funds. This gives the lender comfort knowing some financial protection is in place if you were to die.
Ultimately, it is your decision to weigh up whether the monthly cost is worth it for you. To help, here are some key points to consider:
- If you don't have dependants, you don't need life insurance. If there's no one you'd want the money to go to, don't bother. Equally, if you do have dependants but there would be little financial impact if you died, then you might not need a policy. But if your loved ones would struggle to pay bills without you, it's a way to ease the financial burden.
- Check if you've any cover with your employer. If you're employed, you might have free 'death-in-service' cover. This pays out a multiple of your salary, typically around four times, while you're an employee of that company, so you might not need additional protection. Though do remember to check the new employer's policy every time you change jobs!
How much cover do I need?
If you're considering a policy, you'll need to think about how much you'd like it to pay out if you were to die. This could be determined by the monthly payment you can afford, but a good rule of thumb is to aim for 10 times the annual income of the highest earner.
This may seem high, but it's likely to leave enough money (after the impact of inflation) to cover mortgage repayments and expenses, such as childcare costs. It could also go a way to supplement the income of those left behind if they had to then leave employment, for example to care for children or relatives.
To help you calculate a figure that works for you, it's worth ensuring any policy covers:
- Any outstanding debts that need to be paid off (including mortgages).
- Immediate outgoings your dependants would need to pay.
- Future spending, eg, university costs for the kids.
- Any additional expenses a death may trigger, such as funeral costs.
How long should the policy last?
A policy covering children should last until they'd no longer be reliant on you/your partner, so that's generally at least until they finish full-time education.
If you're planning on having more children you may want to estimate when that'd be rather than trying to extend or get a new policy later. This is because cover becomes more expensive the older you get.
To cover a partner it should last until the year you expect to reach pensionable age. Don't feel obliged to cover a round number of years – policies can be for 17 years, for example.
Can you have more than one life insurance policy?
Yes. Over time your circumstances can change; debt or living expenses can increase, for example. You might have moved to a more expensive home, or your family might've grown.
When this happens, it's always a good idea to review your finances to make sure any life insurance you have is still suitable – or whether you need to make up a shortfall; either by extending your existing cover or buying an extra new policy.
What will affect my life insurance quote?
Insurers will give you a personalised quote, based on the cover you want and the information you provide about yourself (and any other named policy holders if it's a joint policy). This will generally include:
1) Your age. In general, the younger you are, the cheaper cover will be.
2) How much cover you want. The greater the payout you're looking for, the more it'll cost.
3) How long you want the cover for. The longer you want the policy to provide cover, the more it will cost. As you get older, insurers will see a greater chance of a claim.
4) Whether you have any medical conditions. It's important to disclose any medical conditions, or it could invalidate a policy. Some conditions will mean you pay more, whereas others might not have much of an impact at all. Full info in Life insurance with a pre-existing condition.
5) If you want any extra cover added-on. Critical illness is a common add-on. Read our full Critical illness cover guide.
6) How you buy the policy. If you're buying a property, you might be encouraged to take out some form of life insurance by the mortgage company, bank or financial advisor at the estate agent. You don't have to go via them though – you might not get the best or cheapest options.
When you buy a policy yourself, you'll have two main routes – Non-advised and Advised. Non-advised is usually cheaper, but you'll need to know exactly what you want. If you're not sure, or have medical conditions, an advised route is likely to be the better option.
How much will life insurance cost?
The rule of thumb is you should get quotes from a number of providers. Yet unlike with car insurance or home insurance, the cheapest life insurance prices are not usually on the standard comparison sites. In general, you'll find the cheapest quotes by going to a broker. Never blindly go with a policy from your bank or direct from an insurer, as these are expensive ways to buy.
When you buy cover, you will be given two choices of monthly payment:
- Guaranteed – your insurer will never change the price over the life of the policy.
- Reviewable – often cost less at first, but your insurer can hike costs later on, so a cheap deal now may prove costly in the long term.
The table below shows you how much prices can differ for the same level of cover, depending on where you buy the policy. These prices (guaranteed over the term) are an example only – based on our imaginary 30-year-old non-smoker with no medical conditions – so you might find your own personalised prices are quite different.
How life insurance costs can differ depending on how you buy
| Guaranteed prices over a 25-year term with £200,000 benefit (1) | ||||
| Provider | Monthly (level-term policy) |
Total cost (level-term policy) |
Monthly (decreasing policy) | Total cost (decreasing policy) |
| Discount broker (non-advised route) |
TABLE_CELL_STYLE £5.10 |
TABLE_CELL_STYLE £1,310 |
£3.84 |
£1,180 |
| Discount broker (with advice) |
TABLE_CELL_STYLE £6.14 |
TABLE_CELL_STYLE £1,550 |
£5.60 |
£1,680 |
| Typical comparison site (2) |
TABLE_CELL_STYLE £7.38 |
TABLE_CELL_STYLE £1,860 |
£5.77 |
£1,730 |
| Typical direct bank (2) |
£10.11 | £2,550 | £7.78 | £2,330 |
| Typical direct insurer (2) |
TABLE_CELL_STYLE £10.94 |
TABLE_CELL_STYLE £2,760 |
£8.11 |
£2,430 |
(1) Prices based on 30-year-old non-smoker. (2) When you purchase online, with no advice.
Prices correct as of November 2024.
- Non-advised route – usually best if you know exactly what you want, you don't need the policies explaining and you want the absolute cheapest price.
- Advised route – if you're not sure what kind of policy you need, or you have medical conditions, or you want to speak to an expert. They'll do a full check of your financial and medical situation to find the right policy for you.
IMPORTANT: Get your policy 'written in trust' to avoid tax issues
If you die with an active life-insurance policy, the payout forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. Yet, in many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out.
If the policy is written in trust, the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and often speeds up the payout.
If you know what you're doing, you can write the policy in trust yourself. If not, seek advice from a top advisory broker or see our guide on Independent Financial Advisers.
If you know what you're doing, you can go via a specialist discount broker. This is the very cheapest way to buy life insurance, but it does rely on you knowing what sort of policy you want to buy.
You can buy a policy through them, usually for a £25 fee, and they rebate all the commission they get from the insurer into your policy (so you basically get a discount, hence the 'discount broker' name). Despite the one-off fee, you can save £1,000s over the life of policy.
Below are the brokers we've found to be the cheapest, and have decent feedback. We'd suggest trying as many as you have time for.
Important. If you do call any of these companies before you buy, make sure you're clear on whether you're getting 'advice' or 'information'. If they're advising you, or pushing you towards one policy over another, they need to do a full check on your financial and medical circumstances and insurance needs, so it'll cost more. Do ask if you're not sure.
When we did our research into these brokers, there was no consistent winner that gave the cheapest premiums every time, so we'd suggest getting quotes from as many of these providers as you have time for. We've listed them alphabetically but don't see that as a set order in which to try them, as our research showed different brokers were cheapest for different scenarios
Some of these brokers offer vouchers or cashback, but while you should factor these in to your calculations, you shouldn't be swayed by them. For example, if a broker with a voucher gave you a premium just £1 a month more expensive than the same policy with another provider, over a 25-year term, that'd mean you were paying £300 more for the policy – not worth it for a £100 voucher.
It is also worth considering the three brokers in the 'non-advised' section (above) who can usually offer an advised policy, yet here it may not all be about cost. You may feel more comfortable with one broker over another, so be guided by the service they're offering you too...
Advised brokers to try (in alphabetical order)
 ActiveQuote* |
Up to £130 Amazon voucher. New ActiveQuote* life insurance customers who use this link to request a call back and buy a policy, will receive the voucher after six monthly payments have been made made. For monthly premiums from £10 to £34.99, you'll be emailed a £60 voucher and if your premium's more than £35, you'll get a £130 voucher. |
 Howden Life & Health* |
£100 cashback paid when you request advice and buy a policy via this Howden Life & Health* link. The cashback will be paid by Howden Life & Health after you've paid the first six monthly premium payments. |
 LifeSearch* |
Up to £140 Amazon voucher. To get the voucher, answer some initial questions using this LifeSearch* link and you will get a callback.
Once you commit to buy a new policy, if your monthly premium is up to £30, the voucher amount will be £60 and if your monthly premium is more than £30, you'll get a £140 voucher after the policy has been in force for 90 days. |
Struggling to find cover?
If you're struggling to find cover and the firms above weren't able to help, or you'd rather find someone local to where you live, head to the British Insurance Brokers Association website and use their 'Find insurance' search. Make sure to select 'Life insurance' when it asks what you'd like to insure.
How to complain about your insurance provider
The insurance industry doesn't always have the best reputation for customer service. Plus, while a provider may be good for some, it can be hell for others.
Common problems include claims either not being paid out on time or at all, unfair charges, or exclusions being hidden in small print. It's always worth trying to call your provider first, but, if not, then…
You can use free complaints tool Resolver. The tool helps you manage your complaint, and if the company doesn't play ball, it also helps you escalate your complaint to the free Financial Ombudsman Service.
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