Life Insurance Guide UK:
How Much Cover Do You Need?
Who Pays The Bills When You Are Gone?
Right, let’s get straight to the point: talking about life insurance isn't exactly what you'd call a thrilling topic. You’d probably rather be reading about a nice holiday or watching cute cat videos. But stick with me; this matters.
Life insurance is one of those things you often don’t know you need until it’s too late. It’s not about you, after all. It’s about making sure the people you love aren't left scrambling around, financially lost, when you're no longer around to help.
Think About the People You Care About
You might be wondering, "Do I really need life insurance?" Fair question. Here’s the simple test:
Do you have a partner, children, or others who depend on you financially?
Do you have a mortgage or significant debts?
Would someone struggle financially without your income?
If you've nodded to any of those (even reluctantly), it's probably time to consider life insurance.
Do You Actually Need Life Insurance?
Before we dive into the nitty-gritty, let's address one key point. Not everyone needs life insurance. If you're single with no dependents, have no debts, and your main concern is who gets your vinyl collection, you might want to skip ahead to our critical illness cover section instead instead.
But for many of us, life insurance is essential. Here's a quick reality check. You probably need life insurance if:
You have financial dependents:
A partner who relies on your income
Children who need supporting through school and beyond
Parents you're caring for financially
Anyone who would struggle without your financial contribution
You want to leave a legacy:
Funeral costs covered (average UK funeral now exceeds £4,500)
Inheritance for loved ones
Charitable donations
University funds for children or grandchildren
And if the above apply, then life insurance becomes even more important if you have significant debts:
A mortgage (the big one for most of us)
Personal loans or car finance
Business loans you're personally liable for
Credit card debts
Remember - debt doesn't die with you. Your estate has to pay it from assets. That means you might leave less than you think.
Understanding Life Insurance: The UK Landscape
Life insurance in the UK is actually more straightforward than you might think. At its core, it's a contract between you and an insurance company. You pay them regular premiums, and if you die during the policy term, they pay out a lump sum (or regular income) to your chosen beneficiaries. Simple enough, right?
What makes it slightly more complex is choosing the right type of cover for your circumstances. The UK life insurance market is well-regulated by the Financial Conduct Authority (FCA), which means you're protected from dodgy dealers and misleading sales tactics. But it also means there's a bewildering array of options available.
The Main Types of Life Insurance
Let's break down your options into digestible chunks:
Term Life Insurance
This is the most popular and usually the most affordable option. Think of it as renting life cover for a specific period. You choose how long you want to be covered (typically 10, 20, or 25 years) and how much you want the payout to be. If you die during this term, your beneficiaries get the money. If you outlive the term, well, congratulations on still being alive! The policy simply ends with no payout.
Term life insurance works brilliantly for most people because it covers you during your most financially vulnerable years: when you have a mortgage to pay, children to raise, and fewer savings to fall back on. Once your mortgage is paid off and the kids have fled the nest, you might not need the same level of cover.
Whole-of-Life Insurance
As the name suggests, this covers you for your entire life. There's no expiry date (apart from yours), so it's guaranteed to pay out eventually. This certainty comes at a price: whole-of-life policies are significantly more expensive than term insurance.
These policies make sense if you want to leave a guaranteed inheritance, have a disabled dependent who'll always need financial support, or are worried about inheritance tax on your estate. They're also popular with people who want to ensure funeral costs are always covered, no matter when they shuffle off this mortal coil.
Decreasing Term Insurance (Mortgage Life Insurance)
This clever variant is designed specifically to protect your mortgage. The amount of cover decreases over time, roughly in line with your outstanding mortgage balance. It's cheaper than level term insurance because the potential payout reduces each year.
Here's why it works: if you die in year one of a 25-year mortgage, your family needs almost the full mortgage amount. But if you die in year 24, they only need enough to pay off that final year. The decreasing cover matches this reality, keeping premiums lower while still protecting your home.
Increasing Term Insurance
The opposite of decreasing term: your cover amount increases each year, usually in line with inflation. This helps ensure your payout maintains its buying power over time. Yes, it's more expensive than level term, but it protects against the erosion of inflation over a long policy term.
How Much Life Insurance Do You Actually Need?
Ah, the million-pound question (though hopefully not literally; that would be expensive). Calculating the right amount of cover is crucial. Too little and you leave your family short; too much and you're wasting money on premiums.
Here's a practical approach to working out your magic number. Even better, you can use my downloadable Excel template to help you calculate, with automatically updating fields.
Step 1: Calculate Your Debts
Start with what you owe:
Outstanding mortgage balance: £________
Personal loans: £________
Credit cards: £________
Car finance: £________
Other debts: £________
Total debts: £________
Step 2: Factor in Final Expenses
Death is expensive (ironically). Consider:
Funeral costs: £4,000-£7,000
Probate and legal fees: £2,000-£5,000
Estate administration: £1,000-£3,000
Total final expenses: £8,000-£15,000 (use £10,000 as a reasonable estimate)
Step 3: Income Replacement
This is where it gets personal. How many years of your income would your family need to adjust to life without you? A common approach:
Young children: 10-18 years of income
Older children: 1-9 years of income
No children but supporting partner: 5-10 years of income
Annual income × years needed = £________
Step 4: Future Needs
Don't forget:
University fees (£9,250 per year currently)
Wedding contributions
House deposits for children
Care costs for elderly parents
Total future needs: £________
Step 5: Subtract Existing Resources
Be realistic about what's already in place:
Current savings: £________
Existing life insurance (through work perhaps): £________
Widow/widower's pension: £________
Other investments: £________
Total existing resources: £________
Your Life Insurance Need
Total needed (Steps 1-4) minus existing resources (Step 5) = Your life insurance requirement
If this seems overwhelming, don't panic. Just use my calculator, which has automatically updating fields, to get to a number appropriate for your needs. Speaking to an adviser can help clarify your needs. The important thing is to start somewhere - you can always adjust your cover later.
What Affects Life Insurance Costs?
Now for the bit that makes everyone wince: the cost. Life insurance premiums vary wildly based on several factors. Understanding these can help you get better deals and avoid nasty surprises.
Your Age
This is the big one. Life insurance gets more expensive as you get older because, well, statistically you're closer to claiming. A healthy 30-year-old might pay £10 per month for £200,000 of cover, while a 50-year-old could pay £40 for the same amount. The lesson? Don't procrastinate: every year you wait costs money.
Your Health
Insurers are obsessively interested in your health. They'll ask about:
Current medical conditions
Past health issues
Family medical history
Height and weight (BMI)
Mental health history
Being honest is crucial. Lying or omitting information could invalidate your policy, leaving your family with nothing. If you have health conditions, you'll pay more, but you can still get cover.
Your Lifestyle
Your hobbies and habits matter. Smokers typically pay double what non-smokers pay - harsh but statistically sound. Other factors include:
Alcohol consumption
Dangerous hobbies (skydiving, anyone?)
Travel to high-risk countries
Occupation (desk job vs North Sea oil rig worker)
The good news? Quit smoking for 12 months and you usually qualify for non-smoker rates. That's a powerful incentive beyond the obvious health benefits.
The Policy Details
The type, term, and amount of cover all affect price:
Longer terms cost more than shorter ones
Higher cover amounts mean higher premiums
Whole-of-life costs more than term insurance
Additional features (like critical illness) increase costs
The Application Process: What to Expect
Applying for life insurance has become much simpler thanks to technology, but it's still more involved than buying car insurance. Here's what typically happens:
Online Application
Most applications start online. You'll answer questions about:
Personal details (age, occupation, address)
Health history (conditions, medications, operations)
Lifestyle (smoking, drinking, hobbies)
Family medical history
The cover you want
Top tip: have your medical details handy. Knowing exact dates of operations or diagnoses speeds things up.
Medical Underwriting
Based on your answers, the insurer will either:
Accept you at standard rates: Happy days! You're average risk (in a good way).
Accept with increased premiums: You're higher risk but still insurable. They'll explain why premiums are higher.
Request more information: This might include:
A telephone interview with a nurse
GP report (they'll request this)
Medical examination
Blood tests or other checks
Defer or decline: If you're currently ill or very high risk, they might ask you to reapply later or unfortunately decline cover.
Don't be put off if you're asked for medical information, it's normal for larger amounts of cover or if you have health conditions.
The Waiting Game
Simple cases can be approved within 24 hours. Complex cases involving medical reports might take 4-6 weeks. The insurer should keep you informed throughout.
Once approved, you'll receive policy documents. Read them! Check all details are correct and you understand what's covered and what's not.
Putting Your Life Insurance in Trust
If there's one extra tip I insist on mentioning, it’s this: Put your life insurance policy in trust.
This simply means that when you die, your loved ones receive the payout quickly, easily, and - best of all - tax-free (at least, at the moment). Almost every reputable insurer in the UK can help you do this for free. Don’t skip it: PUT YOUR LIFE INSURANCE IN TRUST.
Why am I shouting? Because this simple, free step can save your family thousands in tax and months of waiting. Yet most people don't bother.
What is a Trust?
A trust is a legal arrangement where you (the settlor) give your life insurance policy to trustees to look after for your beneficiaries. It sounds complex but it's actually straightforward, and most insurers will set it up for free when you buy the policy.
Benefits of Using a Trust
Inheritance Tax (IHT) Protection
Without a trust, life insurance payouts form part of your estate. If your total estate exceeds £325,000 (or £650,000 for married couples with property), everything above is taxed at 40%. Ouch.
With a trust, the payout bypasses your estate entirely. Your £200,000 life insurance stays as £200,000, not £120,000 after tax.
Faster Payouts
Without a trust, your family must wait for probate; typically 6-12 months. They're grieving, possibly struggling financially, and bureaucracy is the last thing they need.
With a trust, payouts happen within weeks of the claim. The money's there when it's needed most.
Control and Protection
Trusts let you control who gets the money and when. Want to ensure your 18-year-old doesn't blow their inheritance on a gap year in Ibiza? The trust can specify they get it at 25, or in stages.
Types of Trust
Discretionary Trust: Trustees decide who benefits and when. Flexible but requires trusted trustees.
Absolute/Bare Trust: Beneficiaries are fixed and get the money immediately. Simple but inflexible.
Split Trust: Combines elements - perhaps spouse gets income, children get capital later.
Most insurers offer standard trust forms that work for straightforward situations. Complex families or large sums might need solicitor-drafted trusts.
Over 50s Life Insurance: A Different Beast
If you're over 50, you've probably seen those daytime TV adverts promising guaranteed acceptance life insurance with a free Parker pen (because nothing says "death planning" like quality writing instruments). Over 50s plans are indeed different from standard life insurance, and it's worth understanding both their appeal and their limitations.
How Over 50s Plans Work
These are whole-of-life insurance policies with some unique features:
Guaranteed acceptance: No medical questions or examinations
Fixed premiums: Pay the same amount monthly until you die
Capped payouts: Usually between £1,000 and £20,000
Waiting periods: Full cover typically starts after 12-24 months
The appeal is obvious: if you're 73 with a heart condition and diabetes, standard life insurance might be impossible or prohibitively expensive. Over 50s plans guarantee you can leave something behind.
The Reality Check
However, these plans come with significant drawbacks:
You might pay more than the payout: If you live a long life (fingers crossed), your total premiums could exceed the death benefit. Pay £30 monthly for 20 years and you've paid £7,200 for a £5,000 payout.
Low coverage amounts: The maximum payout rarely exceeds £20,000 - enough for a good funeral but not much else.
No surrender value: Stop paying and you get nothing back. All those previous payments? Gone.
Inflation erodes value: Your £10,000 payout might sound reasonable now but could be worth much less in 20 years.
When Over 50s Plans Make Sense
Despite the drawbacks, these plans work for some people:
You can't get standard life insurance due to health
You specifically want to cover funeral costs
You need guaranteed acceptance
You can afford the ongoing premiums
You understand and accept the limitations
For healthier over-50s, standard term insurance to age 80 or 90 often provides better value. It's worth getting quotes for both before deciding.
Critical Illness and Income Protection: Close Cousins
While this guide focuses on life insurance, it's worth briefly mentioning two related products that often cause confusion. I address these in separate sections, but in summary:
Critical illness cover pays out if you're diagnosed with a serious condition like cancer, heart attack, or stroke. Unlike life insurance, you don't have to die to claim; the money helps while you're recovering or adjusting to life with illness.
Income protection replaces part of your salary if you can't work due to illness or injury. It pays monthly until you recover, retire, or die, whichever comes first.
Many people bundle critical illness with life insurance for comprehensive protection. Whether this makes sense depends on your circumstances and budget. Both deserve consideration as part of your overall financial protection strategy.
Common Life Insurance Myths Debunked
Let's tackle some persistent myths that stop people getting covered:
"Life insurance never pays out"
Absolute nonsense. UK insurers pay out over 98% of life insurance claims. The few rejections are usually due to non-disclosure (lying on applications) or deaths within exclusion periods. Be honest when applying and claims get paid.
"I get life insurance through work, so I'm sorted"
Death in service benefits are brilliant but often insufficient. They typically pay 2-5 times your salary. That's helpful but probably not enough to clear the mortgage and support your family long-term. Plus, lose your job and you lose the cover. Worse, in fact, some policies state that you must not be signed off sick for more than a few weeks (i.e. become long term sick) or the cover becomes inactive. So, get signed off with cancer and if you subsequently die...your dependents get nothing.
"I'm too young to need life insurance"
If you have dependents, you need cover regardless of age. Plus, buying young means lower premiums for life. That policy you buy at 25 could cost £15 monthly; wait until 45 and the same cover might cost £50.
"My health conditions mean I can't get covered"
Rarely true. You might pay more, but specialist insurers cover everything from diabetes to cancer survivors. The key is finding the right insurer for your condition—this is where brokers earn their commission.
"Life insurance is too expensive"
For most people, life insurance costs less than their Netflix and Spotify subscriptions combined. Can you really not afford £10-40 monthly to protect your family's entire financial future?
Making a Claim: What Your Family Needs to Know
We buy life insurance hoping it's never claimed, but if the worst happens, your family needs to know what to do. Make this process easier by:
Keeping Good Records
Store your policy documents somewhere safe but accessible. Your family needs:
Policy number
Insurer contact details
Type and amount of cover
Trust documents (if applicable)
Tell your executor where to find these documents. Include details in your will or letter of wishes.
The Claims Process
When someone dies, here's what typically happens:
Family contacts the insurer (most have dedicated bereavement lines)
Insurer sends claim forms and explains requirements
Family provides death certificate and completed forms
Insurer may request additional information (medical reports, coroner's report)
Claim assessed and (hopefully) approved
Payment made to beneficiaries or trust
Most straightforward claims complete within 2-4 weeks. Complex cases involving investigations might take longer, but insurers must keep families informed.
What Can Delay Claims?
Missing documentation
Death within waiting periods
Unclear beneficiaries
Deaths abroad
Suspicious circumstances requiring investigation
Medical non-disclosure discovered
Good record-keeping and honesty during application prevent most delays.
Reviewing and Updating Your Life Insurance
Life insurance isn't a "set and forget" purchase. Your needs change, and your cover should too. Review your life insurance when:
Life Events Happen:
Marriage or divorce
Birth or adoption of children
House purchase or remortgage
Significant salary changes
Children becoming financially independent
Retirement approaching
Annually: Even without major changes, annual reviews ensure your cover remains appropriate. You might find:
You need more cover due to inflation
You need less as debts reduce
Better deals are available
Your health improvements qualify you for lower premiums
Making Changes
If you need different cover, you typically have three options:
Adjust existing policy: Some policies allow increases (usually with new underwriting) or decreases (immediately effective).
Add supplementary cover: Keep existing policy and buy additional term insurance for the extra amount needed.
Replace entirely: Cancel current policy and start fresh. Only do this after new cover is confirmed - never leave yourself uninsured.
Life Insurance and Your Wider Financial Planning
Life insurance doesn't exist in isolation; it's part of your broader financial security. Consider how it fits with:
Your Will: Life insurance provides the money; your will directs where it goes. Keep beneficiary nominations updated on both.
Pensions: Many pensions include death benefits. Factor these into your life insurance calculations to avoid over-insuring.
Savings and Investments: As these grow, your life insurance need might reduce. Regular reviews keep the balance right.
Business Protection: If you own a business, consider how your death would affect it. Business life insurance is a separate topic but worth investigating.
Choosing Your Life Insurance Provider
The UK life insurance market is competitive, with dozens of providers vying for your pounds. Here's how to choose:
Direct vs Broker
Going direct to insurers can work for straightforward cases. You'll deal with one company, possibly getting slight discounts, but you're limited to their products.
Using a broker gives access to the whole market. They'll find the best deals and handle applications. Particularly valuable if you have health conditions—brokers know which insurers are most lenient with specific issues.
What to Look For
Beyond price, consider:
Financial strength: Will they exist to pay claims in 30 years?
Claims reputation: Check reviews and payment statistics
Customer service: You want helpful humans when needed
Trust options: Free trust setup saves solicitor fees
Additional benefits: Some include terminal illness cover or children's cover
Getting Quotes
Whether direct or through brokers:
Compare like-for-like cover
Check what's included (terminal illness benefit? Waiver of premium?)
Understand premium guarantees (can they increase?)
Read the small print on exclusions
Don't just pick the cheapest—value matters
Taking Action: Your Life Insurance Checklist
Right, enough theory. Here's your practical action plan:
This Week:
Calculate how much cover you need using my downloadable Excel template with automatically updating cells.
Check existing cover through work or old policies
List any health conditions and medications
Decide on type and term of cover needed
Next Week:
Get quotes from at least three sources
Shop around: Use trusted comparison sites like Compare the Market or MoneySuperMarket to find deals.
Speak to a financial adviser if you’re unsure or your needs feel complicated. You can find one through Unbiased or check with your bank or building society.
Compare options carefully
Speak to broker if you have health conditions
Discuss with partner/family
Choose your preferred option
When Applying:
Be completely honest about health and lifestyle
Have medical details ready
Consider trust options
Name clear beneficiaries
Check all details before accepting
After Getting Cover:
Store documents safely
Inform executor of policy existence
Set annual review reminder
Update if circumstances change
Relax knowing you're protected
Final Thoughts: Why This Matters
Thinking about your own death isn't fun. There are approximately 47,293 things you'd rather do than sort out life insurance. But here's the thing: this isn't really about death. It's about love.
It's about ensuring your partner doesn't lose the house while grieving. It's about your children still going to university even though you're not there to support them. It's about removing financial stress from the worst time in your family's life.
Life insurance is genuinely one of the most selfless financial decisions you can make. You'll never see the benefit yourself, but your family will thank you for having the foresight and courage to protect them.
So pour yourself that cuppa, open the FREE calculator, and get this sorted.