Life insurance is one of the most important financial products for anyone with dependants or a mortgage, yet many UK households remain dangerously underinsured. This guide explains the different types and how to work out what you need.
- Why life insurance matters
- Term life insurance
- Whole of life insurance
- How much cover do you need?
- Shopping around saves money
Why life insurance matters
Life insurance pays out a tax-free lump sum or regular income to your beneficiaries when you die. For families with young children, a mortgage, or other financial commitments, this provides essential financial protection at the most difficult of times.
Without adequate cover, the death of a main earner can leave surviving family members struggling to pay the mortgage, cover living costs, and maintain their standard of living.
Term life insurance
Term life insurance is the simplest and most affordable type. You choose a fixed amount of cover and a term length — say £300,000 of cover for 25 years. If you die within the term your beneficiaries receive the payout. If you survive the term the policy ends with no payout.
Level term policies pay the same amount whenever you die within the term. Decreasing term policies — often used to cover a repayment mortgage — have a payout that reduces over time in line with your reducing mortgage balance, making them cheaper than level term.
Whole of life insurance
Whole of life policies remain in force for your entire life and are guaranteed to pay out whenever you die. Premiums are significantly higher than term insurance and these policies are more commonly used for inheritance tax planning than straightforward family protection.
How much cover do you need?
A common rule of thumb is to insure ten times your annual salary, though the right amount depends on your individual circumstances — your mortgage balance, your family's living expenses, your partner's income, and how many years until your children are financially independent.
Shopping around saves money
Life insurance premiums vary significantly between providers. Always compare quotes from multiple insurers. Using an independent broker or a comparison site is the easiest way to find the best available rate.
Bottom line
If you have a mortgage or dependants who rely on your income, life insurance is essential rather than optional. Term life insurance is affordable — a healthy person in their 30s can get £250,000 of cover for 25 years for as little as £10 to £15 per month.