Life Insurance

The Ultimate FAQ on Life Insurance in the UK

Our beginner's guide to life insurance will help you understand what life insurance is and find the policy that ticks all the boxes.

What does life insurance mean and what does it cover?

Life insurance, which can also be known as life cover or life assurance is a type of policy that offers peace of mind to you and your loved ones. It can help minimise the financial impact that your death could have on your family.


Most life insurance policies are designed to pay out a cash sum to your loved ones if you die while covered by the policy. It can help them deal with everyday money worries such as household bills, childcare costs or mortgage payments.


Do I need life insurance?

If you are single with no one depending on your income, then life insurance is most likely is not required. However, if you have a dependent partner or family who may struggle to cope financially in your absence, then life insurance could offer the assistance they need in a difficult time.


Will my employer or workplace provide life insurance?

Possibly. Some workplaces and employers offer death-in-service benefits, which is typically paid out as a lump sum (and is normally four times your annual salary if you die while in employment).


This can be a valuable benefit, however it is recommended that you take out additional cover under certain conditions, for example, if you have a big mortgage or a large family.


What is term insurance?

If you want to pay off a large debt when you die, a term life insurance policy could be for you. There are two types of term policies:


  • Level term: Your premium stays the same throughout the policy's term, and the payout stays the same.
  • Decreasing term: Your premium stays the same, but the payout decreases over the policy's term.


The premiums you pay on a decreasing term insurance policy will be cheaper compared to a level term policy, but the pay-out you get will be less each year the policy runs too.


How much does life insurance cost?

Here is a helpful infographic from ‘bestpricefs’:

The premium will depend on the type of policy, the size of the sum insurance and also the risk of you claiming (your occupancy may affect this). The insurer may even check your postcode, as different areas of the country are more likely to claim.


I am already unwell – can I still take out life insurance?

If you have a pre-existing medical condition, it is often more challenging to take out life insurance.


There are specialist insurers who offer life insurance to individuals who have pre-existing medical conditions, however, these policies are likely to have higher insurance premiums. Some insurers will decline outright.


Is it possible to insure my partner?

Yes. It is possible to take out joint life insurance, which is often cheaper than taking out individual life insurance. However, it is important to be aware that join life insurance only pays out once (at the time of the first death), and leaves the surviving partner without insurance.


I am over the age of 50, can I still take out life insurance?

Yes, but life insurance premiums will rise with age and older people will almost certainly pay more for cover. It is important to shop around to ensure you get the best deal.


Will my family have to pay tax on any life insurance payout?

Proceeds from a life insurance claim are free from income and capital gains tax, however, they can be counted as part of your estate and therefore potentially liable for inheritance tax (IHT).


It is easy to sidestep IHT by writing the policy ‘in trust’, meaning it is not taken as part of your estate when you die.


Can I make adjustments/changes to my life insurance policy?

If you have life insurance, it's a good idea to regularly review the cover to make sure it’s right for you and your family circumstances.


When you sign up for a policy, the extent of cover – how long it lasts, and how much it would payout – is based on your financial situation and commitments at that time.


But these can change. Your life insurance policy needs to change as well to ensure your family is fully protected if the worst happens to you or your partner.


What is critical illness cover?

Critical illness cover pays out a lump sum if you are diagnosed with a serious condition during the policy term. However, most policies only pay out once, so if you did claim then your family would not be able to claim again on your death.


Also, the list of conditions is not exhaustive, so check the small print for what is listed.


Are there any other policy add-ons?

Rather than critical illness cover, you can also add terminal illness cover – where you receive a payout on being diagnosed with a terminal, life-ending illness or condition.


Another common add-on is a waiver of premium, which helps pay the premium when you are unable to work due to illness or injury.


How do I get cheap life insurance?

There are some things you should do to make sure you're getting the right life insurance cover for you and things you can do to get the cheapest life cover available for your circumstances:

  • Be honest about your medical history. Your insurer will ask about your health and can check with your doctor.
  • Two separate policies for couples means each policy will payout for each death. Joint policies usually only pay for the first death.
  • Non-smokers pay less for life insurance than smokers - so giving up could save you money
  • Shop around for cheap life insurance quotes but don't simply pick the cheapest life cover available – do your research
  • Choose the right policy and right amount of cover - check if you have cover already with your employment or mortgage – don't pay for cover you don't need
  • Premiums tend to be cheaper the younger you are, so lock in a good price while you can!


Have we missed something? Let us know and we’ll make sure to update this article!