Life insurance provides a financial safety net for your loved ones if you die during the term of the policy. It can help pay off a mortgage, replace lost income, fund children’s education, or simply provide a cash lump sum at a time of immense difficulty. Despite its importance, many UK adults remain under-insured or uninsured altogether. This guide helps you understand the options and choose the right level of cover.
Types of Life Insurance
Term life insurance pays out if you die within a fixed term (typically 10–40 years). It is the most common and affordable type. Level term pays a fixed lump sum regardless of when you die during the term. Decreasing term pays a gradually reducing amount, designed to match a repayment mortgage. Whole-of-life insurance has no end date and guarantees a pay-out whenever you die, though premiums are significantly higher.
How Much Cover Do You Need?
A common rule of thumb is to insure yourself for 10 times your annual salary, but the right amount depends on your individual circumstances. Consider your outstanding mortgage balance, other debts, your partner’s income, the number and ages of your children, funeral costs, and any other financial commitments. A protection adviser can help you calculate the precise amount your family would need.
What Affects Your Premium?
Premiums are based on your age, health, smoking status, occupation, and the amount and length of cover. Smokers typically pay double the premium of non-smokers. Pre-existing health conditions do not necessarily prevent you from getting cover, but they may increase your premium or result in specific exclusions. Locking in a policy when you are young and healthy is the most cost-effective approach.
Writing a Policy in Trust
Placing your life insurance policy in trust means the pay-out goes directly to your named beneficiaries without forming part of your estate. This can speed up the payment (avoiding probate delays) and potentially keep the pay-out outside the scope of inheritance tax. Setting up a trust is straightforward and usually free of charge through your insurer.
Key Takeaways
- Term life insurance is the most affordable way to protect your family financially.
- A general guide is to insure yourself for 10 times your annual income.
- Locking in a policy while young and healthy secures the lowest premiums.
- Writing a policy in trust can avoid inheritance tax and speed up the pay-out.
Frequently Asked Questions
What is the average cost of life insurance?
A healthy 30-year-old non-smoker can expect to pay around £5–£15 per month for £200,000 of 25-year term cover.
Does life insurance pay out for suicide?
Most policies include a suicide clause that excludes pay-out if death occurs within the first 12 months of the policy.
Can I have more than one life insurance policy?
Yes, you can hold multiple policies from different providers. Each policy pays out independently.
Written by
Catherine Lloyd
DipPFS, Protection Adviser
This guide has been written and fact-checked by a qualified professional to ensure accuracy. All information is regularly reviewed and updated. Wisehande editorial standards require expert authorship and peer review for every guide we publish.
