What is life insurance?

We don't want to think about what will happen when we pass away. But if the worst happens, your loved ones will be relieved that you took out a life insurance policy. In this guide, we'll explain everything you need to know about life insurance, including the different types, the benefits and how to buy it.

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What is life insurance?

Life insurance policies provide financial support to your dependents if you pass away (or receive a terminal illness diagnosis).

If you pass away during the term of the cover, your insurer pays out a specified sum of money to your nominated beneficiary. Your beneficiary can be anyone you choose, although most people nominate their spouse or partner.

If you have financial obligations like a mortgage (which will still need to be paid after you've gone) or dependents that rely on your income, life insurance can lighten the load at an extremely stressful time.

Just 35% of Britons have life insurance cover - Source

How does life insurance work?

After selecting the right life insurance policy for you, you pay premiums to your life insurance company. You typically pay premiums monthly, but some insurers allow you to pay annually. Make sure you keep up with your payments or your policy will be cancelled.

If you pass away during the term of your life insurance, your insurer will pay a lump sum to the person you named on the policy. This money is known as the policy's death benefit.

Terminal illness cover

Most life insurance policies also add cover for terminal illnesses. If you receive a diagnosis for an illness with a life expectancy of twelve months or less, your policy will pay out.

Terminal illness coverage provides financial support at an extremely difficult time for you and your loved ones.

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Types of life insurance policy

There is a wide variety of life insurance policies available. The right one for you depends on your needs and personal circumstances. Each has its advantages and disadvantages. Use this guide to select a policy type that matches your requirements.

Level term policy

Term life insurance means you are insured for a specified period of time until the policy's expiry date. Often, people will use term life insurance policies to cover the length of a financial obligation like a mortgage or loan. However, policies differ in how the premium payments and the death benefit change during the term.

Level term life insurance means that the premiums and the lump sum payout stay the same throughout the term. Your dependents would receive the same amount if you passed away on the first day of the policy as they would on the last day.

Increasing term life insurance

With an increasing term life insurance policy, your policy's death benefit increases over time. Your insurer will regularly review your premiums, which are likely to also rise.

Increasing term is a good option for people with dependents that will need more help as they get older, such as a surviving spouse. The policy can also be index linked to counteract rises in inflation.

Decreasing term life insurance

Decreasing term is the opposite of increasing term. It means the death benefit paid out to your beneficiary will reduce over time.

This is an advantage if you're taking out a life insurance policy to cover a mortgage. As you pay off your mortgage and the outstanding amount decreases, you don't need as much life insurance coverage.

Whole life insurance

Often called life assurance or permanent life insurance, a whole life insurance policy has you covered from the minute you purchase it until you pass away, whenever that may be.

It's great for people who don't want to worry about renewing their policy after it expires. However, policies that cover your entire life tend to be more expensive than the policies we've talked about so far.

Over 50's life insurance

Over 50's life insurance differs from standard life insurance in that:

  • You can only take it out if you're between 50 and 85
  • There is no mandatory health check when you apply
  • Single life policies only, no joint policies
  • The amount of life cover available tends to be lower
  • Guaranteed payout, no expiry date

While over 50's life insurance is good for people who want to help their loved ones after they've gone (payouts are often spent on funeral costs), it is not always the best value. Because the death benefit is fixed at the beginning of the policy, if you live a long time, your loved ones will probably end up receiving less than you paid in monthly premiums.

Group life cover

Group life cover is life insurance that is paid for by a company for its people as an employee benefit.

It works in the same way as standard life insurance, paying out a sum to dependents if the employee passes away. However, it's the company that pays the premiums.

  • An estimated 10.4 million people are members of group life insurance schemes in the UK - Source

Critical illness cover

Critical illness cover is typically offered as an optional extra that you can add to your life insurance policy.

If you are diagnosed with a critical illness that's covered by your insurer, it will pay out part of your life insurance benefit. This can be useful if you have a job where if you can't work, you don't earn. It can relieve some of the financial stress your illness causes.

Not every serious illness will be covered by your insurer, but a majority will pay out for:

  • Cancer
  • Heart attack
  • Stroke
  • Parkinson's disease
  • Multiple sclerosis

As always, check the small print of your insurance policy to know your coverage.

Joint life insurance

The policies we've talked about are single life policies, which pay out to your dependents if you pass away during the term of the policy. Alongside your partner, you can also purchase a joint life insurance policy, which insures both of you together.

A joint policy pays out when the first person covered passes away, providing the benefit to the surviving partner. However, the policy then expires, leaving the surviving partner without life cover. It only pays out once.

A joint life policy is advantageous if you have financial commitments, such as a mortgage, or if you have children. A joint policy is typically cheaper than insuring both partners separately.

A married couple embracing each other

What does life insurance cover?

Life insurance covers most natural causes of death. If an insurance company refuses to pay out, it's because the policyholder failed to declare a pre-existing medical condition.

98% of life insurance policies in the UK pay a death benefit - Source


Not all causes of death may be covered by your life insurance policy. Exclusions may include:

  • Genetic or pre-existing medical health conditions - You must let your insurer know about your medical history when you take out life cover. For example, if you had diabetes before you took out your policy and didn't inform your insurer, and you passed away because of a diabetes-related illness, the policy may not pay out
  • Lifestyle - Your insurance provider may choose not to pay if you die due to a lifestyle choice, such as smoking or heavy drinking. They're also unlikely to pay if you pass away in an accident participating in dangerous sports
  • Suicide - If you take your own life or die as a result of a drug or alcohol addiction, you may be ineligible for a life insurance payout

It's essential that you're completely honest with your insurer when buying life insurance. You should also read the terms of the policy carefully.

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Why do I need life insurance?

Life insurance isn't a legal requirement. However, it's a great thing to have if you want to support your loved ones if the worst happens.

Think about what would happen if you passed away suddenly and they were no longer receiving your regular monthly income. Would they be able to pay the mortgage and household bills?

When you have life insurance, you can rest assured your loved ones will receive that much-needed support and what is sure to be a difficult time for them.

Do I need life insurance for my mortgage?

Most mortgage providers recommend that you have life insurance before they approve lending you the money to buy your home - although it isn't a legal requirement.

Again, think of your loved ones in your home. If you passed away and they didn't have your salary coming in, would they be able to meet the monthly mortgage payments? If the answer is no, life insurance is an excellent investment.

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What are the benefits of life insurance?

Providing for your financial dependents after you're gone is a great thing to be able to do. However, there are far more benefits to life insurance than just that.

Meet your financial commitments

Whoever we are, we all have a long list of financial commitments - from larger ones like a mortgage to smaller ones like mobile bills and Netflix. People take out loans for cars or home improvements. Families have regular commitments for their children, such as private schooling or activity clubs. However large or small, these all matter.

If you pass away and you are covered with life insurance, your loved ones will still be able to maintain these regular payments.

Support your loved ones

If you suddenly passed away, how would it affect your family's lifestyle? Would they still be able to go to the places they like to go and do the things they like to do?

Without your income, could your family get by on what is in the family savings account? Would it meet these everyday living expenses?

A life policy could allow your loved ones to enjoy the lifestyle that they're used to.

Pay funeral costs

Your funeral is the opportunity for your family, friends and loved ones to say their goodbyes to you. Some people have grand plans for their funeral, while others take the view that they're not going to be there, so it doesn't really matter.

However you want your send-off to go, is it fair to expect your surviving dependents to pay for it? Life insurance provides a lump sum payment, which your loved ones could use to give you the funeral you always wanted.

Meet medical bills

If you add critical illness coverage to your life insurance policy, you receive a portion of your total insurance amount if you are diagnosed with a serious illness (provided the condition is on your insurer's list). This payment could be useful to cover any medical costs you may incur during your illness. It can also support your dependents if you're not able to work.

Be more tax efficient

If you have your life insurance policy 'written in trust', the death benefit may not be subject to inheritance tax. When you do this, your payment is not considered part of your estate. A financial adviser will be able to help you arrange a trust in the correct way.

Grab exclusive add-ons

Many insurance companies offer exciting extras to their life insurance policies, including:

  • Discounts for gym memberships so you can stay healthy
  • Mental health support
  • Fitness trackers

The aim of these extras is to help you lead a longer, healthier life, so you won't need to claim on your life insurance for many years to come.

Sleep easy

Perhaps the biggest benefit of life insurance is the peace of mind it brings. It's also probably the main reason people buy life insurance. After all, they won't be there when it's time to use it.

When you are covered, you can sleep easy knowing that you have done your best to look after your loved ones if the worst happens. The consequences of not having you (and your income) around could be disastrous, but with life insurance, you've created a support mechanism for the people most important to you.

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How to buy life insurance

As mentioned earlier in the article, there are several different types of life insurance. Amounts of coverage and premium prices will vary wildly between types of life cover and between insurance providers.

We recommend that you spend a lot of time researching to find the right policy for you. Some life insurance policies last for more than 25 years, so you don't want to be saddled with one that doesn't do everything that you need it to.

Am I eligible for life insurance?

While all insurance companies will operate slightly different criteria for eligibility, you can usually take out life insurance if you're over 18. Maximum age limits vary wildly between insurers, but the oldest we've seen is 85.

However, even if you're able to take out life insurance, what may differ between insurers is the price, type of insurance, amount of cover and the length of term they allow you to take on your policy.

When you apply, your insurer will ask you a lot of questions about your medical, financial and personal circumstances. It's essential that you fill this in as honestly as you can.

What do I need to disclose to my insurance provider?

When you apply, you'll definitely be asked about your age, height and weight. You'll also need to tell them about your medical history, and depending on what you say, there may be some follow-up questions.

If you smoke, you need to tell your insurer, even if it's only occasional or you're planning to give up soon.

Remember, not disclosing something could lead to your insurer not paying out if you pass away. Don't leave it to chance.

How much life insurance do I need?

How much cover you need is a personal decision, but it should relate in some way to your financial situation and your dependents' needs if you suddenly were not around. Here are some things you need to consider:

  • Your mortgage - how many years are left on it and how much is outstanding?
  • Other debts and family living expenses
  • How long your children (if any) will need supporting
  • How long you plan to work before you retire
  • Funeral plans

If you only want life insurance to cover your mortgage, you could select the outstanding amount and opt for a decreasing term. If you want to support your family after you've gone, a good rule of thumb is ten times your annual income.

Choosing the right type of policy

The right type of policy for you depends entirely on your personal circumstances and why you want life insurance. Decreasing is ideal if you want to cover your mortgage. Increasing is good if you want to maintain the value of your possible payout rather than have it eaten up by inflation. On the other hand, whole of life insurance is the one to go for if you want to guarantee a payout.

If you're looking to see which are the best providers and policies, read our recently updated guide to finding the best life insurance policy.

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Premium prices

The price you'll pay in monthly premiums depends on many factors. These include:

  • Type of insurance - Whole of life insurance is more expensive than term, for example
  • Age - The older you are, the more expensive your life insurance quotes
  • Medical history - If you have pre-existing conditions, you're more of a risk to an insurer, so your premiums will be higher
  • Occupation - If you have a risky job (e.g. construction), it will be more expensive to get live cover
  • Lifestyle - If you smoke or drink heavily, expect to pay higher life insurance premiums

Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.

Founder and Editor

As the founder and editor of myTribe Insurance, the role of Chris Steele is to ensure that the information we provide is of the highest quality and value to those who read it.

Frequently Asked Questions

Can I choose who receives the money if I pass away?

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While most people choose their spouse or partner to be the beneficiary of their life insurance policy, there is no legal requirement to do this. You could choose a son or daughter, relative, friend or even a charity.

If you want to change your beneficiary during the term of your life insurance, that's fine too. Many policyholders change their beneficiary if they remarry, for example. Simply contact your insurance company.

Can I switch my life insurance to a better deal?

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If you can get a better deal from a different insurance provider, you're free to cancel your existing policy and take your business elsewhere. It's advisable that you don't cancel your old policy before your new one starts, or you'll be left without cover.

However, as you get older, you may find life insurance quotes get more expensive. You may find you're better off staying where you are.

What happens to my life insurance policy if I don't die?

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If you take out a term life insurance policy and you're still alive at the end of the term, your cover expires. Unfortunately, you will not receive your premiums back.

The good news is, you have done everything you could to protect your loved ones if the worst was to happen - and you're still alive.