Life insurance

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What is life insurance?

Life insurance can help your loved ones deal with the financial impact of your death.

It could pay out a cash sum if you pass away during the length of the policy.

Terminal illness is included with all term life policies as standard. If you add critical illness cover and are diagnosed with one of the listed critical illnesses during your policy term, you'll be covered for that too. Please note, critical illness cover comes at an additional cost.

Little girl celebrating her birthday is picked up by her dad

How does life insurance work?

Life insurance usually works like this:

  1. You choose the type of policy you want, how long it lasts and the payout amount
  2. You pay the regular premiums to keep the policy active
  3. If you die within the policy term, your beneficiaries must file a claim to receive the payout
  4. If the claim is successful, your loved ones will receive the payment and the policy will end

The amount paid out can change over time. If you take out a level term or life assurance policy, the payout is fixed. With a decreasing term policy, the payout decreases over the term of your cover.

Read more on our guide to how life insurance works.

Do I need life insurance?

Life insurance isn’t a legal requirement, but it could give your dependents financial stability when you die.

You may want to consider life insurance if:

  • You have dependants or a partner who relies on your income.
  • You have a mortgage, credit card, loan or other debt.
  • You might want to cover funeral expenses, to ease the cost for your family.

What does life insurance cover?

You need to understand what your life insurance covers to give you the peace of mind that your family will have the financial support they need.

Cover varies from one policy to another, but there are some things that are always covered or excluded: 

What's usually covered? What's not usually covered?
Most common causes of death Pre-agreed conditions
Terminal illness Drug and alcohol abuse
Self-harm within 12-months of policy start date
Dangerous activities
Critical illness or injury
Disabilities or chronic illnesses
Undisclosed health issues

What are the typical life insurance exclusions?

If you die because of the following, you typically won’t be covered:

  • Suicide or self-harm within a specified time of the policy start date (typically 12 months, but check your policy documents)
  • Pre-existing medical conditions (if you hadn’t declared them)
  • Dangerous activities
  • Drug or alcohol abuse

If you or someone you know is contemplating suicide, get help now. You can call the Samaritans at any time for free on 116 123, or text SHOUT to 85258 to speak to a trained Shout Volunteer. For non-urgent mental health help you can email the Samaritans and they’ll reply within 24 hours.

Are you eligible for life insurance?

If you’re a UK resident, aged between 18 and 85 then you’re off to a good start. You’ll also need to honestly answer a few questions.

If you’re looking for a joint policy, you’ll need the below details for both policyholders.

  1. Health

    Things like any pre-existing medical conditions you might have, and your weight and height

  2. Age and occupation

    Generally, the younger you are the cheaper the policy will be. How risky your job is also plays a part

  3. Lifestyle

    Whether you smoke, drink or exercise

Types of life insurance

There are two main types of life insurance - choose the one that meets the needs of you and your dependants.

Level term life insurance

Level term life insurance is the simplest type of life insurance. You decide the payout value and duration of the policy.

If you die within the term of the policy, your dependants will receive the payout as a fixed sum. The amount paid out stays the same regardless of when a claim is made.

Level term life insurance can be the more expensive option because the amount paid out doesn't change. Make sure to review your policy often to check the payout amount is still right for your dependents.


  • You’ll know how much the payout will be – it doesn’t decrease over time
  • Premiums stay the same throughout the term of your policy – they won’t be reviewed and increased


  • Usually more expensive than decreasing term
  • Inflation could mean your policy’s worth less than you intended in real terms when you die
  • No payout if you die outside of the policy term

Decreasing life insurance

Also known as mortgage life insurance, it’s designed to cover debts that decrease over time - like your mortgage.

So, the amount paid out by the policy reduces with time. If you were to die near the start of the policy term, your dependents would receive more than near the end, when there’s less mortgage to pay off.

This can be a cheaper life insurance option than level term. But if your circumstances change, and you increase your borrowing, you might find the amount isn’t enough.


  • Usually cheaper than level-term cover
  • Can cover your mortgage so your partner or loved ones won’t be faced with losing their home if you die


  • Payout value decreases over time
  • It might only cover your mortgage and not extend to other bills and expenses for your family

Other types of cover

There are a number of different types of life insurance available, but they all pay out either as level term or decreasing policies.

What’s different about these types is they’re mainly based on your personal circumstances. So, the cover changes slightly.

Joint life insurance

If you’re in a relationship, you could take out a decreasing term policy that pays out in the event of either of you dying. It can be a cheaper option than holding two policies. But it will only pay out on the first death, after which the cover will end.

Life insurance for new parents

When you’ve got a little one on the way, thinking about the future is inevitable.

If you were to pass away, life insurance could cover childcare costs as well as the mortgage, so your partner won’t have to worry about paying out large sums of money.

Life insurance with pre-existing medical conditions

A pre-existing medical condition can mean fewer life insurance providers to choose from. You might also have to pay a higher premium to have your condition included on your policy.

Alternatively, you can choose to exclude your existing illness from your cover altogether. But the policy won’t pay out if you die as a result of the excluded condition.

Income protection insurance

Income protection insurance pays out a monthly sum if you can’t work due to illness, injury or being made redundant – it basically replaces your normal wage, but only up to a certain amount.

When you take out a policy, you specify what percentage of your wage you want it to cover, and whether you want it for a short term (usually around 12 months or so) or long term (typically ends when you go back to work, retire or die).

Does life insurance pay out?

98% of life insurance claims were paid out in 2021 - totalling a record £6.8 billion

According to the ABI, May 2022

Life insurance and critical illness cover

Critical illness cover is a separate policy that can be taken out alongside life insurance, or on its own (it won’t affect your life insurance if you buy them separately).

It can help you financially if you’re diagnosed with a serious illness during the term of your policy, like if you’re unable to work, for example.

You’ll be insured for a fixed amount, which is paid either monthly or all in one go.

Senior gentleman looking after his grandkids and curly haired dog

How much life insurance do I need and for how long?

Deciding how much life insurance you need and how long to make the policy last for can be a difficult decision.

Generally, the advice is to take a policy worth 10 times the highest earner’s annual salary. But the higher the amount you’re insured for, the higher your premiums.

What do you need cover for?

It’ll help work out how long you need cover for too. If it’s for your mortgage, take out life insurance to cover your remaining mortgage term. If it’s to see your children through their education, make sure it covers you until your youngest finishes their education.

What type of cover do you want?

You’ll have to decide whether to take out level or decreasing term cover and whether you want critical illness included or not. The more extensive your cover, the more it'll cost.

Make sure you’ve covered everything you need to

It doesn’t just have to be about your mortgage, you can factor in other debts and monthly outgoings too. Things like personal loans and credit cards. Consider future costs as well. If you have children, would they need help through university? And funeral costs can be a big expense at a difficult time.

Consider Inflation

The amount you choose might be worth less in real terms in a few decades’ time because of inflation.

Buying a house or starting a family? If your circumstances change, you might want to consider getting life insurance

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Page last reviewed: 23 February 2023