Life insurance

How life insurance works, the types of cover, and how insurers set the price.

• What is life insurance, and how does it work in the UK? — Life insurance is a contract: you pay a monthly premium, and the insurer pays an agreed lump sum — the sum assured — if you die during the cover. Term policies cover a fixed period and pay nothing if you outlive it; whole-of-life policies cover you for life. Pay-outs go to your estate, or to trustees if written in trust.
• How much life insurance do I need? — Add up what the money would need to do: clear the mortgage and other debts, replace your income for the years dependants rely on it, and cover specific costs such as childcare or a funeral. Then subtract savings, existing policies and employer death-in-service benefits. The gap is the sum assured worth quoting for.
• How much does life insurance cost in the UK? — There is no single honest figure: premiums depend on your age, health, smoking status, the sum assured, the term length and whether premiums are guaranteed or reviewable. Any “average premium” without a named source and date cannot predict your quote. Fix a specification, then compare written like-for-like quotes.
• Term vs whole-of-life insurance: what’s the difference? — Term assurance covers a fixed number of years: it pays the sum assured if you die inside the term, and nothing if you outlive it. Whole-of-life cover has no end date and pays whenever you die. Because a pay-out is certain rather than possible, whole-of-life premiums are substantially higher for the same sum.
• Level vs decreasing term life insurance: what’s the difference? — Both are term policies, but a level term sum assured stays fixed for the whole term, while a decreasing term sum falls over the years, broadly tracking a repayment mortgage balance. Because the insurer’s potential liability shrinks each year, decreasing term costs less for the same starting figure.
• Life insurance vs critical illness cover: what’s the difference? — Life insurance pays the sum assured when you die during cover. Critical illness cover pays a tax-free lump sum when you are diagnosed with a condition meeting the policy definition — while you are alive. They answer different needs: providing for others after death versus funding your own life through serious illness.
• Life insurance vs mortgage protection insurance: what’s the difference? — “Mortgage protection” is usually decreasing term life insurance sized to your mortgage: the pay-out falls with the balance and clears the debt if you die. Standard level term cover costs more but can clear the mortgage and leave money over. The right structure depends on everything the money needs to do, not just the loan.
• What does putting life insurance in trust mean? — Writing a life insurance policy in trust means the pay-out goes to trustees for your named beneficiaries instead of into your estate. Two practical effects follow: trustees can usually claim without waiting for probate, so money arrives faster, and the pay-out generally sits outside the estate for inheritance tax.
• Do life insurance policies actually pay out? — Yes — the large majority of UK life insurance claims are paid, with industry-collected figures in the high nineties per cent. Declines cluster around three causes: the policy had lapsed, the death fell outside the cover terms, or the application had been answered inaccurately. Disputes can go free to the Financial Ombudsman.
• Over-50s life insurance explained: guaranteed acceptance plans — Over-50s plans offer guaranteed acceptance within an age band: no medical questions, a fixed modest pay-out and a fixed monthly premium. The trade-offs are structural — pay-outs are capped, death within the first one or two years usually returns premiums rather than the sum assured, and premiums are payable for life or to a set age.