Life insurance

The types of cover that can help to protect your family’s finances

Thinking about how your family would cope financially if you were to die isn't the easiest topic, but it's an important one. This guide helps you decide whether life insurance is right for you, looks at the different types of cover, and shows you how to find the cheapest policy that meets your needs.

What types of life insurance are available?

It can at times seem confusing which type of life insurance cover you should get - but put simply, they all very much do the same, to give financial support if you were to die and a claim was made by someone on your behalf.

Its aim - depending on the insurance policy, is to provide financial support to those you leave behind, to prevent the loss of your income from causing a money crisis.

But which type should you get? Here we list the types of policy covers available to help you assess which type of cover would most likely suit your needs the best. 

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 the maximum age varies by provider. 

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 that 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 type of policy 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 offers guaranteed acceptance up to age 80 or 85, even if you have a medical condition. Yet this type of cover can be much more expensive and, as you can't claim in the first one or two years, you could get back less than you pay in. For full information and warnings, see our Over-50s' Life Insurance guide.

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 £10,000 for each of the remaining five years.

It is worth knowing that some policies can be arranged for the payment to be paid to your mortgage company on a monthly basis if that suits your needs better.

As the amount it pays out is for a fixed period, and therefore reduces over time, 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, when a claim can then be made.

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. Because of this, they are usually an expensive option. 

It's also worth knowing 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 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.

However, if you had a joint policy and were to later split with your partner, you'd need a new single policy – and this could be more expensive as it would be based on your new age and health. 

While taking out two single policies is usually more expensive, there'd be two payouts if both of you were to die during each policy term. And as you'd be covered personally, it'd be in place regardless of whether you stay with your partner. 

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.

Ultimately, you're not obliged to have life insurance though, so you'll have 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 still might not need a policy. But if paying the bills, the mortgage, bringing up kids, food shopping and more would be a struggle, life insurance is 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 are an employee of that company – the death doesn't need to occur at work or be linked to your job. You'll have to fill out an expression of wish form to tell the pension provider who the money go to in the event of your death, so make sure you keep it up to date. Depending on how much the cover will pay out, you might not want to take out additional protection yourself. 

Benefits of life insurance

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 were to die.

People often consider it as a way to ensure those left behind can meet monthly mortgage repayments and other essentials. This could include: 

  • Mortgage costs – to pay off, or pay towards, any outstanding mortgage debt you have
  • Debts and loans – to clear other outstanding borrowing, such as loans – especially any loans that are 'secured' against property you own.
  • Funeral costs – as well as any burial costs
  • Future living costs and expenses, such as rent payments and bills
  • Educational costs – such as school fees or money towards further education for children

If you decide that life insurance is right for you, it'll be more expensive the older you get. Read on for more about the factors that will affect your quote.

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 (or ages if a joint policy). In general, the younger you are, the cheaper cover will be. Even though younger people can end up paying for insurance over a longer period, cheaper premiums means they can still save overall.

2) How much cover you want. The greater the payout you're looking for, the more it's likely to cost.

3) How long you want the life insurance cover for. The longer you want the policy to provide cover, the more it will add to the cost. As you get older, insurers will see a greater chance of a claim.

4) Whether you have any medical conditions (as well as your partner if it's a joint policy). 
When it comes to arranging any form of insurance, it is always important to be honest and disclose anything that could affect your quote – failing to do so could invalidate a policy. Some medical conditions will mean you pay more, whereas others might not have much of an impact at all. It'll depend on the condition, when diagnosed and how it's controlled.

5) Do you want any extra cover add-on, such as critical illness. It is possible to get enhanced cover, such as adding critical illness cover extension, which is a common add-on to life insurance policies (you can also get standalone policies). Yet critical illness policies come with a lot of exclusions, so if you're considering this type of cover, make sure you read our full guide to critical illness cover.

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. Below we give examples of the costs and how they differ, depending where you buy it from.

How much cover do I need?

pennies in a jar

If you are 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 the following:  

  • Any outstanding debts that need to be paid off (including mortgages, unless they're covered by a separate policy).
  • Immediate outgoings your dependants would need to pay.
  • Future spending you would have wanted to make, eg university costs for the kids.
  • Any additional expenses a death may trigger, such as funeral costs.

Quick questions...

  • 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.

Life insurance need-to-knows

If you think life insurance is right for you, here are our key need-to-knows to understand before opting for a new policy.

  • When you buy life insurance cover you will be given two choices of monthly payment (premium) – guaranteed or reviewable.

    If your premiums are guaranteed, your insurer will never change the price, so you'll know what you'll be paying over the life of the policy. Reviewable premiums, on the other hand, often cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially become costly as you age.

  • It's important you're open and honest with any information you provide, to ensure any policy that's set up for is fit for your needs – and will cover you if the worst were to happen and your dependants needed to make a claim. 

    Likely things you'll need to disclose when getting a quote for a policy include your age, whether you smoke, your occupation and your health history. The insurer then uses this information to determine whether it will cover you and a price. 

    If you're comparing quotes yourself via a discount broker, you'll usually answer a few basic questions to see initial prices, but will then have to disclose much more detailed information if you then go through to the insurer to apply, which could affect the price/the decision to insure you. 

    As each insurer has its own rules on pre-existing medical conditions, if you've a complicated medical history, it's worth getting advice before you buy. This is helpful as brokers tend to know which insurers will cover your condition(s), and at the best rates.

    If you're over 50, you can get a policy with guaranteed acceptance – but it's much more expensive 

    If you don't want to disclose health issues and are 50 or over, an over-50 policy is an alternative which doesn't require any health questions or medical exams, and there's guaranteed acceptance up to age 80 or 85. Yet to compensate these are much more expensive, you can't claim in the first one or two years and you could get back less than you pay in.

    For full information and warnings, see our Over-50s' Life Insurance guide.

  • 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.

    It's relatively easy to do as most insurance policies include the option (and papers) for writing in trust directly at no extra charge. Note that there are different types of trusts and they can be difficult to change or cancel, even if all your beneficiaries agree, so think carefully about who a payout would be going to.

    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.

  • Life insurance usually gets more expensive with age, so savings aren't always possible. The fact you're older, or if you've had health conditions since you got the policy can mean new policies are more expensive than the one you have. Yet there's no harm getting a quote, especially if any of the following applies: 

    • You took out a policy direct from a bank or insurer (and your health is largely unchanged). If you took out a policy via your bank or direct with an insurer without getting multiple quotes first, it's likely you could stand to save from switching policies. Plus, there's no harm in running some new quotes to check. If it shows you can save (make sure the cover is at the same level), all you need to do is set up the new cover. Once it's in force, cancel your existing policy.

      As MSE Eesha found: "I took out cover 3yrs ago for £23/mth. I then decided to run some new quotes and found the SAME policy with the SAME provider for £9/mth. Over the 15 years that's left I'll save £2,520."

    • You've since quit smoking, or you no longer have a risky job. Non-smokers pay a lot less than smokers, because they're a lot less likely to die during the term. To count as a non-smoker, you need to have been genuinely nicotine-free for at least a year and in some cases up to five years, so always check.

      Therefore one year after you quit, get a new quote and see if you could save big. But don't be tempted to lie. If you die and it is discovered you had been a smoker, it could invalidate the policy. If you are seriously giving up, it's a good idea to get it noted on your medical records to back up any potential claim. 
  • Many things can happen during the lifespan of the policy, and while your broker or mortgage insurance company may be doing well now, it could be a different scenario 20 years down the line. Here's how you could be affected:

    • If your insurer goes bust the Financial Services Compensation Scheme (FSCS) will try to find another insurer to take over your policy or issue a substitute one. Equally, if you've ongoing claims, or need to claim before a new insurer is found, the FSCS should ensure you're covered. 

    • If your broker goes bust the only payment you're likely to make to a broker will be the fee for arranging the policy, which is often no more than £25. 

      In the unlikely event your broker went bust after you paid it but before your insurance was arranged, the chance of you getting your money for the fee back is slim.

      The FSCS would be able to help with any premiums lost as a result of a broker going bust, as these payments are ring-fenced, but this is unlikely to extend to broker fees.

How much will life insurance cost?

The rule of thumb is you should get quotes from a number of providers. Yet unlike other insurances, such as car or home, the cheapest 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.

This table shows you how much prices can differ for the same level of cover, depending on where you buy the policy – some options can easily cost you twice as much. These prices are an example only – based on our imaginary 30-year-old non-smoker – 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)
(2)
Total cost
(level-term policy)
(2)
Monthly (decreasing policy) (3) Total cost (decreasing policy) (3)
Discount broker
(non-advised route)

TABLE_CELL_STYLE

£5.33

TABLE_CELL_STYLE

£1,599

£3.70

£1,110

Discount broker
(with advice)

TABLE_CELL_STYLE

£6.93

TABLE_CELL_STYLE

£2,079

£5.16

£1,548

Typical comparison site (4)

TABLE_CELL_STYLE

£7.07

TABLE_CELL_STYLE

£2,121

£6.29

£1,887

Typical direct bank (4)
£10.46 £3,138 £7.07 £2,121
Typical direct insurer (4)

TABLE_CELL_STYLE

£11.45

TABLE_CELL_STYLE

£3,435

£7.32

£2,196

(1) Prices based on 30-year-old non-smoker.  (2) Prices correct as of November 2023. 
(3) Prices correct as of March 2023.  (4) When you purchase online, with no advice

How to buy life insurance

In our scenario, while the cheapest way to buy life insurance is from a broker, you'd need to decide whether you want advice on which policy to choose, as the cheapest policy isn't always going to be the best one for your circumstances. So choose between these two options (the links will jump you to the top brokers in each section)...

  • 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.

Cheapest 'non-advised' brokers – if you know what you want

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 fee of £25) and they rebate all the commission they get from the insurer into your policy (so you basically get a discount hence the name discount broker). So, while the fee is a one-off £25, you can save £1,000s over the life of policy. 

We'd suggest checking at least the top two and add in the third if you've time, and remember - if you're not sure what you're doing or if a policy's suitable, it's likely better to get advice.

Important. If you do pick up the phone to speak to any of these companies before you buy, make sure you're clear on whether you're getting 'advice' or 'information' - ask the person you're speaking with.

If they're advising you, they need to do a full check on your financial and medical circumstances and insurance needs before suggesting policies to you. If they're just giving you information about policies or answering your questions, that's fine, but here you shouldn't be pressured in to taking one policy over another.
 

Cheapest 'advised' brokers – if you need help choosing

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 helped or 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.

To get the voucher, you will be emailed details within 45 days (after the 90 day qualifying period) and must submit your claim details within 12 months of the email.

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…

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