A Guide to Life Insurance

Written by David Beard on July 17, 2018

Updated March 9, 2022

Life insurance to protect your loved ones

For many individuals, one of the most important investments they will make is life insurance, and yet there are still a huge number of people across the country that have no cover in place. A good life insurance plan can be the difference between your loved ones struggling to get by after you’re gone, and them being financially secure.

Thinking about not being around to protect your family in the future can be daunting and overwhelming but preparing for the worst can help put your mind at ease. The last thing anyone wants for his or her family is for them to be left in financial trouble in the event that you’re no longer around; life insurance is a responsible way to protect your loved ones.

Life insurance provides peace of mind that your dependants and family will be okay in the future, and that if something should happen to you, your loved ones are financially safe. It isn’t always the easiest insurance product to navigate and understand, and the various options and plans can make choosing life insurance difficult and confusing. This guide will explain what life insurance is, how much it costs and what type of cover is best for you and your family.

What is life insurance?

Life insurance

Life insurance is designed to provide you with some reassurance that your dependants will be financially looked after if you are no longer around to provide for them. If you die, your life insurance provider will pay your family money either as regular payments or one lump sum. This can help them to cover any financial obligations you may have left behind and also to help them get by without your regular income.

In the event of your death, your loved ones will go through an incredibly emotional and stressful time and providing them with life insurance cover can allow them to maintain the way of life they are used to.

The amount of money that is paid out on a life insurance plan depends on the level of cover chosen and how long you have been paying the insurance for. You are free to decide how it is paid out after your death; you can choose to put it towards specific outgoings such as rent or a mortgage if you wish.
In most cases, life insurance policies will only cover death. In the event of an illness or disability that stops you from providing for your family, you will not be covered and cannot receive the pay-out.

Some providers may offer a terminal benefit with your life insurance policy; this means you will get a pay-out should you be diagnosed with a terminal illness. Be sure to check the terms and conditions of a life insurance policy to know if it includes a terminal benefit, in most cases life insurance providers do not automatically grant these.

The regulations of life insurance covers can vary between providers and cover time, but in general, there are some exclusions to most policies. The majority of life insurance policies will not pay out if your death is due to alcohol or drug abuse, and if you regularly play risky sports you may have to pay a higher premium for your cover. Some life insurance policies will also give you the option to cover your own funeral costs, to give your family another helping hand and less stress when you are gone.

Sometimes life insurance payouts can affect means-tested benefits that your dependants might be eligible for, so be sure to consider this when deciding how you want the money paid out.

Who is life insurance for?

Anyone can take out life insurance if you want to. However, in some cases, it isn’t worthwhile. It really depends on your family situation on whether you should consider getting life insurance cover. If you have children or anyone else in your life who is dependent on you, then life insurance is a good idea.

Dependants could include children under the age of 18, a partner who relies on your income or a family of any age living in a home where you pay the mortgage. Life insurance would protect your loved ones when you are gone and give them the financial security to keep up with their daily lives. It isn’t enough to depend on the government to look after your family when you are no longer around, the amount that is provided by the government is a lot lower than you might think.

Whether you are a full-time parent or the family provider, your role in the home is vital and if you were no longer around there would be a financial cost involved to replacing your duties in the home. It can be very easy to understand the importance of taking life insurance out if you are the sole financial provider for your family. However, the value of a stay at home parent should not be underestimated.

While you might think life insurance isn’t essential for a parent that doesn’t bring in any income, when you consider the cost of hiring someone else or giving up work to personally undergo the household tasks and childcare, it soon adds up. Life insurance may not be as crucial for those who are single, have a partner who earns enough to cover all the family costs or families on a low income that can receive government benefits.

If you aren’t sure if life insurance is going to be a beneficial investment for you and your family, speak with a financial advisor to discuss your options and the costs involved.

How long do I need life insurance for?

There are several factors that should be taken into consideration when working out how long you need life insurance for. Think about your current financial commitments and debts such as any personal loans, credit cards and even your mortgage. All of these things will need to be paid off when you die and will be left as your family’s responsibility.

Look at your current repayment terms for all of your debts; many people only take out life insurance for long enough to cover their debts in the event of the death. For example, if you have 15 years left on your mortgage before it is fully repaid, you could take out life insurance to cover these 15 years so that you know your mortgage will be paid off should something happen to you.

Another option is to take out life insurance cover for longer than you need to pay off your debts so that you can also leave a lump sum for your family once the debts have been covered. Take into consideration your dependants and how they will be provided for after your death. If you have children of a young age, it could be worthwhile taking out life insurance that will last until they are old enough to be financially independent.

The length of your life insurance cover is completely up to you, but it is often worth discussing it with your partner and family before deciding how long you need cover for. The length of your life insurance will affect how much you pay for the cover, so think about how much you can afford when making your decision.

How much life insurance do I need?

The amount of life insurance cover that you need is completely dependent on your personal situation, as well as your needs and priorities. For many, the top priority is to keep a roof over their family’s head once they are gone. However, the mortgage is not the only cost to be considered.

You should work out every aspect of your household finances such as groceries, utility bills, council tax, car running costs, memberships or children’s activities. If you are regularly responsible for childcare in your family home, you will also need to consider the cost of getting in extra help if you are no longer around.

Take into consideration any savings or other investments you might have that your family could use in the event of your death. If you have substantial money set aside in savings, this can reduce the amount of life insurance cover that you will need.

Pulling a figure out of thin air when choosing how much life insurance you need can be a struggle, properly working out your finances and understanding what your family will need to pay out when you are gone is the best way of working out your life insurance.

How much does it cost?

Life insurance costs have been decreasing in recent years, with premiums now sitting at a reasonable and affordable amount. In the past, women would usually be offered lower premiums than men because they have a longer life expectancy. European legislation that took effect in December 2012 prevents life insurance providers from offering different premiums based on gender. However, there are a number of other factors that will affect your premium cost.

Your age, current health and occupation are all taken into consideration when you apply for life insurance coverage. Those who suffer from serious medical conditions will need to pay more than those in good health, and individuals who work in physical or dangerous jobs will have higher premiums than those with office jobs.

Whether you are a smoker or non-smoker also has a big impact on the cost of your life insurance. Smokers will always need to pay higher premiums and to qualify as a non-smoker, you will usually have to have given up all nicotine products, including e-cigarettes and replacement products, for at least 12 months. If you have an existing life insurance policy in place and have given up smoking, let your life insurance provider know as they could reduce your premiums.

There are usually two options for life insurance premiums, and when taking out cover be sure to know which type you will be getting. Premiums will either be ‘guaranteed’ or ‘reviewable’. Guaranteed premiums will remain the same throughout the length of your cover, making budgeting and managing your finances easy.

Reviewable premiums can change over time depending on your circumstances. In most cases, guaranteed premiums are higher than reviewable premiums from the start, but over time can end up being more cost-efficient as the amount you pay won’t change.

It can be tempting to try to reduce your premiums by stretching the truth or leaving out essential information when applying for life insurance, but this should be avoided at all costs. Not declaring information such as being a smoker, any previous serious illnesses or any current medical treatment could make your premiums lower for now, but should your insurer find out that you weren’t truthful after your death, your policy will be invalidated, and they will not pay out. This can leave your loved ones in a very difficult and stressful situation.

The cost of life insurance is also dependent on how much you want to be paid out to your loved ones. You can determine your life insurance cost by either deciding the premium you can afford to pay each month and then accepting the amount that would be paid out from that or deciding the amount you want to be paid out first and using that to set the premium you will pay monthly. Some life insurance policies will also let you cover your own funeral costs, which can also affect your premium.

If you already have a life insurance plan that you took out a few years ago, you might be able to find a cheaper alternative now as prices have dropped considerably. As you will now be older than when you took your initial cover, the saving might not be much, but it is worth getting new quotes every few years to check.

Types of life insurance

There are several different types of life insurance available, and it can be confusing when trying to determine which is the best choice for you and your family. The right policy for you is dependent on your individual circumstances, and what you want from your life insurance, different types of policy are good for different protection needs. Here are the main types of life insurance policies available:

Whole-of-life cover

As suggested by the name, the whole-of-life cover will guarantee that your dependants will receive the pay-out no matter when you pass away, compared with other types of protection which only pay out if you die before a specific date.

This type of life insurance is ongoing for the duration of your life and will pay out whenever you die, no matter when that is. This type of cover is often more expensive than other options because it is a guarantee that you will die at some point, and therefore the provider is guaranteed to pay out. If you are looking for a cheap life insurance option, you might be better off considering term insurance instead of a whole-of-life cover.

Term insurance

Also known as term assurance, this is the most basic type of life insurance, and it covers you for a set period of time. You choose the amount you want to be insured for and the period you want to be covered for; if you die within the term, then the policy will pay out. If you do not die during this term, then the policy is not paid out, and the premiums you have paid over the term are not returned to you.

This is a popular option for those who just want to protect their dependants long enough to cover housing costs such as a mortgage. For example, if you will have paid off your mortgage in 20 years, you might only want life insurance to cover you for these 20 years and not beyond this. Some people also choose only to cover themselves while their children are still living at home or in full-time education. By limiting the life insurance policy, your premiums will be lower than with whole-of-life cover. Term insurance can be broken down further into these types of cover:

    • Level term insurance: A level term life insurance policy will pay out a fixed lump sum if you pass away within the specified time frame. The amount that you are covered stays the same throughout the term, as do the monthly or annual premiums.

This is a good option for those who want to leave a lump sum of money to their family, or those who need a specified amount of cover for a set length of time. The amount to be paid out will not change at all over time, so you and your family know exactly how much they will get in the event of your death.

    • Decreasing term insurance: With a decreasing term life insurance policy, the amount that you are covered for will be reduced over time. This type of life insurance is popular for those that want to cover a debt that decreases over time, like a mortgage.

Premiums for decreasing term insurance are usually lower than with level term insurance as the amount covered, and the amount to be paid out is reduced as time goes on.

    • Increasing term insurance: In contrast to decreasing term insurance, you may want a life insurance policy where the payouts will grow over time. Increasing term insurance does exactly that and is usually used to combat increasing inflation.

One option is to get an index-linked policy where you can choose to link your payout amount with an inflation measure such as the Consumer Prices Index (CPI). This type of life insurance cover is guaranteed to maintain its real value throughout the term, and if you don’t want the rises to be in line with a specific inflation measure, you can choose to increase it by a fixed amount each year. As the payout amount will every year of the term, the premiums will be higher than decreasing term and level term insurance policies.

    • Renewable term insurance: With a renewable term insurance policy, you have the option to renew the cover at the end of the term without the need for further medical checks. This option provides the flexibility to get term insurance for a set amount of time, to cover debts such as a mortgage, and then extend the cover at the end of the fixed term should you wish to.

Monthly premiums might be subject to an increase once you reach a certain age. However, they will not rise because of any health problems suffered since the original policy was taken out.

    • Convertible term insurance: This type of term life insurance gives you the option to convert your policy into a whole-of-life policy if you decide that is the best option for you. The insurance provider is obligated to convert the policy into whole-of-life cover regardless of any changes to your health since the insurance was taken out.
    • Family income benefit: Family income benefit life insurance is another type of decreasing term policy; however instead of a lump sum being paid out in the event of your death, your family will receive regular income until the policy’s expiry date. This can make it easy to work out how much your family would need, as you know how much your family will require to cover the costs when you are gone.

For example, if you currently take home £2,500 a month, you can set this as the amount that will be paid to your family if you die. The major downside to this type of life insurance is that the regular payments will only last for the duration of the policy term.

This means if you die four years into a 20-year family income benefit policy, your loved ones will receive £2,500 a month for the remaining 16 years. However, if you die 19 years into the policy, they will only receive the monthly payments for one year.

Joint Life Insurance

For those who are married or have a partner with joint finances, it could be worth considering a joint life insurance policy instead of two individual policies. It is usually cheaper to take out one joint policy instead of two separate covers, but the main downside is that it pays out when the first policyholder dies, and this is when the policy will end.

The remaining partner would be required to get themselves another single policy if they wish to continue being insured. Often, they will be much older than when the initial joint policy was taken out, making premiums much higher than if they had taken out an individual policy in the first place.

For couples with no children or other dependants, a joint policy can be a good option as it is a cheap way to protect each other in the event of one partner passing. Although for couples with children to think about, joint life insurance isn’t always a good option, as it can leave your dependants with nothing after both of you are gone.

If you choose to go for two separate life insurance policies, each individual will still have their own life cover in place when the other one passes away. Having two separate policies instead of joint life insurance provides more flexibility, you may want to insure yourselves for different amounts depending on your incomes. Another added benefit of two separate policies is that should the relationship break down; you will not be required to negotiate splitting the life insurance cover.

Over 50s life insurance

For those over the age of 50, getting other types of life insurance can be expensive and depending on your medical history, you might struggle to be accepted. Over 50s life insurance plans are available to anybody over the age of 50, and anyone in this age will be taken regardless of your medical history and current health.

Most over 50s policies have a maximum age limit which is usually somewhere between 75 and 85. Another condition of some over 50s plans is that the policy might have to run for a predetermined length of time, usually between 12 and 24 months, before a claim can be made.

This type of life insurance works similarly to whole-of-life cover as there is no set end date or term in the policy, and it will pay out whenever you die. Premiums are often not too expensive for over 50s life insurance. However, the amount of cover offered is usually quite low. In most cases, the payout will only be a couple of thousand pounds, and for this reason, a lot of individuals take out this kind of cover just to cover their funeral expenses.

The main downside to over 50s life insurance is that if you take the cover out when you are still relatively young, you could be paying your premiums for a very long and still only receive a small payout. Some over 50s life insurance providers will stop your premium payments at the age of 90, but you will still receive your pay out after this age. If you stop paying earlier for any reason, you will not receive any pay out or refund for your past payments.

If you aren’t sure which life insurance policy is going to be the best option for you and your loved ones, discuss the options with your partner or family. It can also be worth seeking professional financial advice to determine which type of life insurance is appropriate for your current situation.

Advantages of life insurance

If you are considering taking out a life insurance policy to protect your loved ones and give yourself peace of mind, there are a number of other advantages that should also be taken into consideration before applying:

Live worry free

Getting yourself any type of life insurance policy means that you can live your life knowing that your family will be provided for should something happen to you. It is a real weight off your shoulders when you don’t have to worry about how your loved ones will get by in the event of your death.

Protect your loved ones

The biggest benefit of life insurance is the payout that your loved ones will receive upon your death. Leaving your family with nothing after your death can create a huge amount of financial and emotional problems for those left behind.

Flexible options

There are so many life insurance options out there that you can be very flexible with the type of cover you want. If you just want to cover yourself while you pay off your mortgage, or just cover yourself for a certain amount, you can do that.

Guaranteed payout

If you choose to get whole-of-life cover, then your family are guaranteed to receive a pay-out no matter when you die.

Low premiums

Depending on the option you choose, you can get life insurance at a fairly low monthly or annual cost. Many people are often surprised at how cheap life insurance can be.

Lump sum or monthly pay-out

With some types of life insurance, you can choose whether you want your family to receive one lump sum payment or fixed monthly payments.

class=”tips”You have a huge amount of control over the cost of your life insurance as it all comes down to the type of cover you want, how long you want it for and how much you want. If you are looking for a cheap life insurance policy, it can be possible to find one if you are flexible on these factors.

Disadvantages of life insurance

As well as the advantages of life insurance, it is also important to consider the disadvantages before making an application:

Pay in too much

The longer you live, the more you will be paying into your life insurance policy. If you take out a policy at a fairly young age and pay it for a very long time, the chances are that you will pay in much more than your family would get as a payout on your death.

Lifetime commitment

Once you begin paying life insurance, you are committed to paying it either until the end of your term or for the rest of your life. If you choose to stop paying early, you will get no refund on the premiums already paid, and your family will receive no payout when you die.


For some individuals, life insurance simply isn’t necessary. If you are single or have no dependants, then a life insurance policy could be a waste of money. Life insurance is only really required when you have other people who depend on you and your income.

As well as life insurance, there are a range of other insurance policies that could be worth considering if you want to protect your family in the event of a crisis. Consider looking into income protection insurance, critical illness insurance and payment protection insurance if you want to cover yourself against most eventualities such as illness or accidents.

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