The Health Guide — clear answers, healthier tomorrows

    Life insurance

    What is life insurance, and how does it work in the UK?

    Written by Stuart Hendy, PMI Expert and Head of Publishing, PremierPMI
    Reviewed by Emma Leadbetter, Editor and Copywriter, PremierPMI

    Published 15 September 2026 · Last reviewed 15 September 2026 · Next review 15 December 2026 · 9 min read

    The short answer

    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.

    PremierPMI is an insurance broker, authorised and regulated by the FCA (FRN 1029667). We may receive commission if you take out a policy. How we are funded.

    In this guide5 sections
    Regulator
    Financial Conduct Authority[1]
    Disclosure law
    CIDRA 2012[6]
    Complaints route
    Financial Ombudsman[5]
    Cooling-off
    Statutory right to cancel[3]

    What to know about how life insurance works

    1. Applying means answering health and lifestyle questions, sometimes with a GP report for larger sums. Read more
    2. During the term premiums stay fixed on guaranteed terms or can be re-rated on reviewable ones. Read more
    3. At claim, your representatives notify the insurer and provide the death certificate and policy details. Read more
    4. Each stage leaves a written record, and that record governs if a dispute arises later. Read more

    What the contract actually does

    Life insurance is a contract between you and an insurer. In exchange for the premium, the insurer agrees to pay the sum assured if you die while the cover is in force. The money goes to your estate by default, or to trustees for named beneficiaries if the policy is written in trust. There is no savings element in standard term cover: if the policy ends without a claim, nothing is returned. Before you buy, the FCA’s conduct rules require the insurer to give you pre-contract information — the Insurance Product Information Document and the full wording — and a statutory cancellation period afterwards. [3]

    Two structural points shape everything else. First, the type of cover decides whether a pay-out is possible or certain: term assurance pays only if you die inside the term, while whole of life cover has no end date and must pay eventually. Second, the premium reflects the risk the insurer is taking on you — your age, health, smoking status and the size and length of cover — which is why two people quoted for the same sum assured can be offered very different prices. The FCA’s Consumer Duty requires insurers to design, price and explain products to deliver good outcomes for retail customers. [4] This guide stays on how life insurance works.

    The main types of life cover

    Level term assurance pays a fixed sum if you die within the term. Decreasing term assurance lets the sum fall over the years, usually tracking a repayment mortgage, and is cheaper for the same starting figure. Whole of life assurance has no term at all and costs substantially more, because the pay-out is certain rather than possible. Guaranteed-acceptance over-50s plans trade medical questions for small, capped sums and an initial qualifying period. The ABI and GRiD track life insurance, income protection and critical illness as distinct claim types in their annual pay-out data — a reminder that “protection” is a family of different contracts, not one product. [9] None of these products builds a savings pot you can draw on; if you are offered a life policy with an investment element, that is a different and more complex contract — check the firm is authorised on the Financial Services Register and read the charges disclosure carefully. [2]

    Thinking about how life insurance works

    What works well

    • A fixed premium buys a defined, documented pay-out.
    • Trust forms are free and keep pay-outs outside the estate.
    • Disclosure law gives proportionate protection if answers are honest.

    What to watch

    • Term cover pays nothing if you outlive it — that is the design.
    • A lapsed policy leaves no cover and no refund.
    • The summary of cover is not the contract — the full wording is.

    Your disclosure rights

    The Consumer Insurance (Disclosure and Representations) Act 2012 replaced the old duty to volunteer everything with a duty to take reasonable care not to misrepresent when you answer the insurer’s questions. The same Act sets out what an insurer can do if an answer was wrong. If the mistake was careless, the insurer must respond in proportion: where it would have offered cover on different terms it applies those terms, and where it would have charged more it can reduce the claim by the same proportion. Only a deliberate or reckless misrepresentation allows it to cancel the policy and refuse the claim. [6] The Ombudsman’s published decisions show both statutes being applied to real declined life claims — including a voided policy where the insurer’s handling was upheld, and a terminal-illness claim turned down on a qualifying misrepresentation. [8][10] This matters enormously for life cover, because a claim is tested against answers given years — sometimes decades — earlier.

    Alongside the statutes, the FCA’s conduct rules require insurers to give you the product information document and full wording before you buy, and to handle claims and complaints fairly. [3] The Consumer Duty sits above all of it: insurers and intermediaries must act to deliver good outcomes for retail customers, covering how products are designed, priced, explained and serviced. [4] You can check that any insurer, adviser or broker you deal with is authorised on the Financial Services Register. [2]

    From application to pay-out

    The life of a policy has three stages. At application you answer questions on health, lifestyle and family history, and the insurer prices the risk — sometimes requesting a GP report for larger sums. During the term you pay the premium and keep the insurer updated where the wording requires it; on guaranteed premiums the price is fixed, on reviewable premiums it can be re-rated. At claim, your representatives notify the insurer, supply the death certificate and the policy details, and the insurer pays the sum assured to the estate or to trustees. Each stage is documented, and that written record — not the marketing summary — is what governs if a dispute arises later.

    Tell the people who would claim that the policy exists, which insurer holds it and where the documents are — unclaimed policies are a genuine and preventable problem. Whatever the specifics of how life insurance works, the discipline that protects your family is always the same: get the insurer’s position in writing, keep the documents with the policy, and make sure the people who would claim know the policy exists and where the paperwork lives.

    Related guides

    Looking at cover with PremierPMI

    PremierPMI is a specialist private medical insurance broker and the publisher of The Health Guide. If you want to talk through what this means for your own cover, you can start there.

    Or, if you would rather start here, send an enquiry and PremierPMI will contact you.

    PremierPMI is an insurance broker, authorised and regulated by the FCA (FRN 1029667). We may receive commission if you take out a policy. How we are funded.

    Common questions

    What happens at the application stage of a life insurance policy?
    At application, you answer questions about your health, lifestyle and family history, and the insurer prices the risk based on your answers. For larger sums assured, it may ask for a GP report before deciding. This stage sets the premium you pay for the whole term, so answering with reasonable care matters — a careless or inaccurate answer can resurface when a claim is eventually made, sometimes many years later, and affect whether the policy pays out in full.
    How do reviewable premiums differ from guaranteed premiums during the term of a policy?
    Guaranteed premiums are fixed for the whole term, so the amount you pay cannot change however your health or the market moves. Reviewable premiums can be re-rated by the insurer at set intervals written into the policy, which means a lower starting price can become considerably more expensive later in the term. Neither type affects whether a valid claim is paid; the difference is purely about cost predictability. Checking which basis applies before you buy, and keeping the documents, avoids an unwelcome surprise years into the policy.
    What do my representatives need to do when a life insurance claim is made?
    Your representatives notify the insurer and supply the death certificate together with the policy details, so the insurer can confirm the policy was in force and the death falls within its terms. The insurer then pays the sum assured to your estate, or directly to trustees if the policy was written in trust. Because this stage relies entirely on paperwork, telling the people who would claim that the policy exists, and where the documents are kept, makes the process far smoother when it matters most.
    Do life insurance policies actually pay out?
    The large majority of protection claims are paid: ABI and GRiD data for 2025 shows £7.84 billion paid across group and individual protection policies, £5.15 billion of it on individual policies. [11] The ABI puts the acceptance rate on individual claims at 97.9 per cent. [11] Claims that fail usually trace to a small set of causes: the policy had lapsed, the death fell outside the cover terms, or the application had been answered inaccurately. [8][10] The Financial Ombudsman Service can review a declined claim free of charge. [5]
    Is a life insurance pay-out taxed?
    The pay-out itself is generally free of income tax and capital gains tax. The tax question is inheritance tax: if the policy pays into your estate, the money can count towards the estate value when inheritance tax is assessed — charged at 40 per cent above the nil-rate thresholds. [7] Writing the policy in trust keeps the pay-out outside the estate in most cases. Confirm the current position on gov.uk or with a qualified tax adviser.
    What happens if I stop paying the premiums?
    On term assurance, stopping premiums ends the cover: the policy lapses, no pay-out is due and there is no cash-in value — term cover has no savings element. [3] On whole of life policies the position depends on the contract: some acquire a small surrender value after many years, others return nothing. If premiums have become unaffordable, ask the insurer in writing what reducing the sum assured or the term would cost before cancelling — a smaller policy usually beats none.
    Do I need a medical examination to get life insurance?
    Usually not. Standard applications ask health, lifestyle and family-history questions, and for many applicants the insurer decides on the answers alone. For larger sums assured, older ages or disclosed history, the insurer may request a GP report, a nurse screening or an examination — paid for by the insurer. Guaranteed-acceptance over-50s plans ask no health questions at all, in exchange for capped pay-outs and a qualifying period. Whatever the format, the Consumer Insurance (Disclosure and Representations) Act 2012 requires you to take reasonable care to answer accurately — a careless answer can surface at claim years later. [6]
    Can I have more than one life insurance policy?
    Yes. Life insurance policies are contracts, not licences, and holding several is common — for example a decreasing term policy matched to a mortgage plus a level term policy for family income. Each insurer underwrites its own application, so your disclosure duty applies to every policy separately, and each asks whether related cover exists. The practical checks are affordability across all premiums, and that the combined cover still matches the need rather than duplicating it. Our guide to working out how much cover you need walks through the arithmetic.
    Is there a cooling-off period after I buy?
    Yes. FCA conduct rules give you a statutory cancellation period after a life insurance contract begins. Under ICOBS 7.1.1R a consumer may cancel a pure protection contract within 30 days, without penalty and without giving a reason. [12] If you cancel within the window the insurer must refund premiums, minus nothing more than the rules permit for cover already provided. [3] The pre-contract documents, including the Insurance Product Information Document, must explain how to cancel.

    Sources and methodology

    1. [1] Financial Conduct Authority. “About the FCA”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    2. [2] Financial Conduct Authority. “The Financial Services Register”. Published Continuously updated; accessed 15 September 2026. View source(opens in a new tab)Primary source
    3. [3] Financial Conduct Authority. “ICOBS: Insurance Conduct of Business (FCA Handbook)”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    4. [4] Financial Conduct Authority. “The Consumer Duty”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    5. [5] Financial Ombudsman Service. “Annual complaints data and insight 2024/25”. Published 2 July 2025. View source(opens in a new tab)Primary source
    6. [6] UK Parliament (legislation.gov.uk). “Consumer Insurance (Disclosure and Representations) Act 2012”. Published Enacted 8 March 2012. View source(opens in a new tab)Primary source
    7. [7] HM Revenue & Customs (gov.uk). “Inheritance Tax”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    8. [8] Financial Ombudsman Service. “Final decision DRN-4675459 (life insurance claim declined — application answers)”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    9. [9] Association of British Insurers and GRiD, reported by Cover Magazine. “£7.34bn paid out by protection insurers in 2023”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    10. [10] Financial Ombudsman Service. “Final decision DRN-4934564 (terminal illness benefit — CIDRA qualifying misrepresentation)”. Published Accessed 15 September 2026. View source(opens in a new tab)Primary source
    11. [11] Association of British Insurers. “Protection insurers pay out £7.84 billion to help customers safeguard their finances”. Published 29 June 2026. View source(opens in a new tab)Primary source
    12. [12] Financial Conduct Authority. “ICOBS 7.1: The right to cancel (FCA Handbook)”. Published Accessed 21 September 2026. View source(opens in a new tab)Primary source

    We cite primary sources wherever possible. Read about our sourcing methodology.

    Written by

    Stuart Hendy

    PMI Expert and Head of Publishing, PremierPMI

    • 20 years in UK private medical insurance
    • Underwriting and corporate placement specialist

    Stuart brings over 20 years of experience advising on UK private medical insurance. He is a key member of the private medical insurance team and Head of the Publishing Team, gathering detailed client requirements, liaising with insurers on tailored quotes, and running training on insurer product changes and underwriting nuance.

    Read full profile

    Reviewed by

    Emma Leadbetter

    Editor and Copywriter, PremierPMI

    • 15 years health, finance and consumer journalism
    • PhD candidate, University of Chichester

    Emma has written across health, finance and consumer-affairs journalism for more than 15 years, and has been part of the PremierPMI team since 2022. She is known for making complex topics easy to understand, and fact-checks every guide against current insurer wording before it goes live. She is completing a PhD at the University of Chichester researching how the NHS has changed since COVID-19.

    Read full profile

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