When you're buying a house or if you're already a homeowner, make sure you investigate whether you need life insurance or not. We explain how life insurance works, the different types and how much it costs.
Life insurance offers a financial safety net for your family if you die. Your loved ones will get a tax-free lump sum if the worst happens and they may use it to pay off the mortgage and cover other expenses. Life insurance is also known as life cover.
When you take out a life insurance policy, you’ll pay monthly premiums. Then if you die, your beneficiaries will be paid the amount of cover in your policy. Life insurance policies will usually also pay out if you’re diagnosed with a terminal illness and given a year or less to live.
There are no restrictions on what life insurance can be used for, that’s up to the beneficiaries. But common uses are:
Life insurance is suitable if you have:
Not everyone needs life insurance. For example, if you’re single and have no dependants, term life insurance might not be the right cover for you. You might find that critical illness cover gives you all the protection you need.
If you have life insurance cover through your employer, you may decide you don’t need to take out a new life insurance policy. Although, remember that if you stop working for that employer, you’ll no longer be covered under their policy.
Find the right life cover. Search the UK’s leading insurers using the service provided by LifeSearch:
When you take out a life insurance policy, you can choose from three different types of cover:
This type of life insurance is technically known as ‘term life insurance’.
The main benefits of life insurance are:
According to Compare the Market data, the average cost of life insurance is £9.35 per month.
However, the amount you’ll need to pay for life insurance will depend on a number of factors, including your:
Here are some examples of how life insurance costs may vary depending on the amount of cover and whether you choose level term or decreasing cover (mortgage life insurance).
For example, a 30 year old non-smoking, office worker with no health or lifestyle disclosures may pay the following guaranteed premiums:
| Sum Assured | Term | Monthly Premium |
|---|---|---|
| £200,000 – level term life insurance | 20 years | £6.84 |
| £500,000 – level term life insurance | 20 years | £14.35 |
| £200,000 – decreasing cover/mortgage life insurance | 20 years | £5.49 |
| £500,000 – decreasing cover/mortgage life insurance | 20 years | £10.01 |
While if the same person above is a smoker, they may pay the following guaranteed premiums:
| Sum Assured | Term | Monthly Premium |
|---|---|---|
| £200,000 – level term life insurance | 20 years | £12.43 |
| £500,000 – level term life insurance | 20 years | £25.02 |
| £200,000 – decreasing cover/mortgage life insurance | 20 years | £8.68 |
| £500,000 – decreasing cover/mortgage life insurance | 20 years | £17.54 |
To get an idea of how much cover you’ll need, you should:
However, getting a figure that’s right for you may seem complicated to work out. So it’s a good idea to speak to an expert who can crunch the numbers for you.
Find the right life cover. Search the UK’s leading insurers using the service provided by LifeSearch:
The average life insurance pay out in 2023 was £80,403, according to figures from the Association of British Insurers.
It’s advisable to shop around for life insurance. By all means get a quote from your mortgage lender or broker, but shop around to compare policies like for like. Different providers will offer different levels of cover at different prices. So make sure you do your research.
With our partners at LifeSearch you can compare life insurance quotes from a range of major UK insurers. LifeSearch provide fee-free advice and all quotes given are without obligation. Get life insurance advice and quotes now.
If you’ve got a spouse or partner, you can choose from getting a joint life insurance policy or two single life insurance policies.
Joint life insurance policies can work well for people who live together, share financial responsibilities and want to take out a similar level of cover. And it is usually cheaper than taking out two single policies. But joint life cover usually works on a ‘first death’ basis. So when the first person dies, it will trigger an insurance payout and the policy will end. The surviving partner will need to take out a new policy if they wish to be covered.
By comparison, getting two single policies means each partner is covered separately. You’ll each have your own policy which you’ll pay premiums on.
Which is best for you will depend on your circumstances. For example, if you want different levels of cover you may opt for single life insurance policies. While if you have a joint mortgage with a partner, you may opt for a joint life insurance policy, but if you have children from a previous relationship, you may choose to take out a single life insurance policy as well.
If you have joint life insurance, the money will typically go to the surviving partner – the other policyholder – when you die, unless you’ve made other arrangements.
While if you have a single life insurance policy, the money will go into your estate. So it’s important to make sure your wishes are known.
Family income benefit is a type of life insurance designed for parents and families. Instead of giving a one-off lump sum when you die, it gives them tax-free payments each month, although you can arrange for payments to be made yearly or quarterly.
Many people take family income benefit out alongside a standard life insurance policy. But you can take it out as a standalone policy.
Advantages of family income benefit include:
However, disadvantages of family income benefit include:
A different type of life insurance you can take our are ‘whole of life insurance policies’. These policies guarantee a cash sum if you die, whenever it occurs, as long as you keep up with your payments. This means they’re more expensive than a term life insurance policy, which are for a fixed period. This is also known as life assurance.
Whole of life insurance policies are often used to help towards funeral expenses. Some people also take out life insurance policies designed to pay an inheritance tax bill. This means your beneficiaries can avoid inheritance tax fees having to be paid in a hurry. Find out more in our guide 9 ways to avoid inheritance tax
Over 50s insurance is a type of whole life insurance and will pay out a tax-free sum of money when you die. You’ll need to be older than 50 to get it and usually younger than 85 (although this varies by insurer).
When you take out Over 50s life insurance, the insurer won’t check your medical history so they can be a good option for people who struggle to get other types of insurance like life insurance or critical illness insurance due to health conditions.
But the added risk means you’ll pay higher premiums for a lower amount of cover. And many insurers won’t pay out during the first 12-24 months or even longer. And you could end up paying in more than you get out.
Find the right life insurance policy for you from our partners at LifeSearch:
When you die, your beneficiary should contact the insurance company as soon as possible. There’ll be some paperwork involved, for example, they’ll need to send the death certificate, or a certified copy, to the insurer to start the claim process.
There are no set timeframes for life insurance payouts but most life insurance payouts are settled within 30-60 days, according to Quick Quote Life Limited. However, there can be delays for example if the insurer needs to carry out some level of investigation into the death.
Some 96.7% of new life insurance claims were paid in 2023, according to statistics from the Association of British Insurers. Reasons for not paying out include if you weren’t up front about your health. For example, LV= says, ‘We won’t pay on some plans or may reduce the amount we pay if the person insured did not fully answer the questions we asked about their health or lifestyle.’
No, you don’t need to take out life insurance for a mortgage. But buying a house is often the trigger for people to take out life insurance so that the mortgage can be paid off if they die. Find out more in our guide Do I need life insurance for a mortgage?
For most people, buying a house is the trigger for buying life insurance. But if you’re renting, it’s important to consider it too, especially if you have dependants because it could offer them financial security if you die.
Some policies contain cancellation fees so make sure you read the terms and conditions properly.
Mortgage life insurance is the same as decreasing term life insurance. With these life insurance policies, the amount of cover goes down each year in line with the outstanding balance on your repayment mortgage. However, you’re not obliged to use any payout to pay off the mortgage.
Critical illness cover pays out a tax-free lump sum if you’re diagnosed with certain life-changing illnesses or conditions.
Yes. Insurers will class you as a smoker if you’ve used any tobacco or nicotine replacements within the last 12 months. This includes vapes, cigars and patches. However, some insurers are more lenient when it comes to vaping.
Life insurance policies last for a specified term during which time you can make a claim. However, life assurance covers you for your whole life and doesn’t have a specific end date. Life assurance is usually more expensive as it’s a guaranteed pay out. This cover is usually used for covering things like funerals but it can also be used in inheritance tax planning.
Terminal illness insurance is included in most life insurance policies as standard, although you should check exactly what’s covered when you take out the policy.
Terminal illness is usually defined as a condition that is fatal, and expected to lead to death within twelve months. And if you receive this diagnosis, the insurer will pay your life insurance benefit at that point instead of when you die.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of Seopa Ltd, for home insurance, authorised and regulated by the Financial Conduct Authority (FCA FRN: 313860).
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
