Life insurance is one of those things most people know they should have but keep putting off. Yet it’s arguably the most important financial protection you can put in place — especially if others depend on your income. This guide explains exactly how life insurance works, what types are available, and how to work out the right level of cover for your situation.
What Is Life Insurance?
Life insurance is a contract between you and an insurer. You pay monthly or annual premiums, and in return, if you die during the policy term, the insurer pays out a lump sum (or regular income) to your chosen beneficiaries. That money can replace your income, clear your mortgage, cover childcare costs, or simply give your family financial security at the worst possible time.
Types of Life Insurance
Term Life Insurance
The most common and affordable type. You’re covered for a fixed term (e.g. 20 or 25 years). If you die within the term, your beneficiaries receive the payout. If you outlive the policy, it simply ends with no payout. Best for covering a mortgage or providing income protection while your children are young.
Whole of Life Insurance
Covers you for your entire life — the payout is guaranteed whenever you die. Premiums are significantly higher than term insurance. Often used for inheritance tax planning or leaving a legacy.
Decreasing Term Insurance
The payout decreases over time, in line with a repayment mortgage balance. It’s cheaper than level term insurance and ideal for covering a mortgage where the outstanding balance reduces each year.
Family Income Benefit
Instead of a lump sum, this pays a regular monthly or annual income to your family if you die. Often cheaper than standard term insurance and can be easier for families to manage than a large one-off payment.
How Much Life Insurance Do You Need?
A common rule of thumb is to have cover worth 10–15 times your annual income. But your actual needs depend on several factors:
- Outstanding mortgage — your cover should at minimum clear what you owe
- Dependants — how many people rely on your income and for how long?
- Existing savings and assets — these can reduce the cover you need
- Partner’s income — if your partner earns well, you may need less cover
- Debts — personal loans and credit cards should ideally be covered
How Much Does Life Insurance Cost?
Life insurance is more affordable than most people expect. A healthy 30-year-old can typically get £200,000 of level term cover over 25 years for £10–£15 per month. Premiums increase with age and health conditions, which is why taking out cover while you’re young and healthy makes financial sense.
| Age | £200k Cover, 25yr Term | £500k Cover, 25yr Term |
|---|---|---|
| 25 | ~£8/month | ~£15/month |
| 35 | ~£14/month | ~£28/month |
| 45 | ~£35/month | ~£70/month |
How to Get the Best Life Insurance Deal
- Compare quotes from multiple insurers using comparison sites
- Buy when you’re young and healthy — premiums rise with age
- Don’t under-insure to save money — the purpose is protection
- Write the policy in trust — keeps the payout outside your estate for faster claims and potential inheritance tax benefits
- Review your cover after major life events (marriage, children, mortgage)
Frequently Asked Questions
Do I need life insurance if I have no dependants?
If nobody depends on your income, life insurance is less critical. However, if you have a mortgage with a partner, or debts that could pass to others, some cover still makes sense.
Can I get life insurance with a pre-existing condition?
Yes, though it may cost more or come with exclusions. Always declare pre-existing conditions honestly — failing to do so can invalidate your policy and leave your family without a payout.
What’s the difference between life insurance and critical illness cover?
Life insurance pays out when you die. Critical illness cover pays out if you’re diagnosed with a serious illness (such as cancer, heart attack, or stroke) but survive. Many people benefit from having both.
Disclaimer: This article is for informational purposes only and does not constitute financial or insurance advice. Please consult a qualified financial adviser or insurance broker before purchasing any policy.