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Expert guide to What is the right Life Insurance?

In this guide, our team of insurance experts will explain what life insurance does and what life insurance is right for you to protect your family, home, or business. Life insurance sounds simple because all it does is pays out a cash lump sum if you die to protect your children and your loved ones.

Many of us don’t want to think about what will happen to our family after we die, and especially how they will cope financially. One of the most important financial decisions that any parent will make is getting life insurance to protect your family and your children if the worst was to happen.

Top financial experts, including Martin Lewis all strongly recommend that parents at least think about life insurance to consider this situation. You might be one of the lucky few that has savings or other financial resources that means you don’t need life insurance.

The quickest and easiest way to decide if you should start thinking about life insurance is this one simple question: “If I were to die tomorrow, how would this financially affect my family?”.

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60-Second Summary – Guide to What is the right Life Insurance?

Sorting out your Life Insurance to protect your family should be simple and you should be able to get the right cover at the right price. There are several things that you need to think about and you just need to ask yourself several simple questions that will make the process even easier.

  • Life insurance pays out a cash (tax-free) lump sum to your family if you die to help them to cope financially with the loss of a breadwinner or care giver.
  • There are only 3 main types of life insurance to protect your family, mortgage or that provides an income for your loved ones if you die.
  • Life insurance premiums start from as little as £5 per month for most types of policies and your premiums will be based on your age, health, and the reasons for your cover.
  • There are lots of common myths about life insurance and its important to get proper advice from a life insurance expert or specialist to get the most suitable cover and save money.

Why do I need life insurance?

Taking steps now might save your loved ones from financial difficulty in the future. Life insurance is a policy that can give your family or dependants financial security and for this reason, it is often called the most essential financial product you can buy.

We’ve put together a guide to help you decide if you personally should be looking at getting life insurance, depending on your circumstances or what stage you are at in your life. The guide is broken down into:

  • Your household income
  • Your family
  • Where you are in life

After this, you should know more about how life insurance can benefit you and be able to make a more informed decision.

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I am the main breadwinner

If you are the main financial support for your household and were to pass away, life insurance may be crucial to your family being able to continue paying the mortgage or rent, grocery shopping, and other daily expenses. Term insurance is the most popular type of life insurance and you can cover your life for a certain period, for example, twenty years.

Most life insurance pays out a single tax-free lump sum but there is also the option of having the money go to your family in regular monthly payments as a salary would. This is called family income benefit.

I am a stay at home parent

You may be a stay-at-home parent and rely on your partner’s salary for financial stability. Likewise, your partner may rely on you for full-time childcare. If you were to pass away would your partner be able to financially cover the current household expenses and childcare? It may be worth getting a more affordable life insurance policy for yourself and one with a bigger pay-out for your partner.

My partner and I bring in the same amount of money

If you and your partner are both bringing in a salary, life insurance might not seem like a necessity. However, if your partner were to pass away, would your salary be enough to cover your mortgage or rent, daily expenses, and, if you have children, childcare? Would your partner be financially secure if you were to pass away?

You could get two single life insurance policies or there is also the option of joint life insurance. This can seem like the more affordable way to cover you both but be aware that once the first half of the couple dies, the surviving partner will not be covered and will have to get a new insurance policy.

I have life insurance through work

You may have life insurance through work if they have a death-in-service cover. This means if you die while employed by the company, your family will receive a lump-sum. This lump sum can be as much as five times your salary.

This is very useful but there are several disadvantages. The main one is that if you ever leave the company or are made redundant, your insurance will immediately come to an end. As you would be older it might be harder to find affordable insurance.

Secondly, you can’t choose the amount or level of cover you have, and the pay-out for regular insurance is normally higher than it is for life insurance through work. You might want to take out additional life insurance so the two policies can cover your family’s needs completely.

Your family

I have young children

If you have young children it would be a good idea to have life insurance at least until they come of age and can financially support themselves. For this, you might want to look at term insurance, the most popular type of life insurance.

Term insurance will cover you within the term agreed only. If you pass away during this time then your family will receive a pay-out. So, for example, if you think your child will be financially independent in twenty years, you can take out life insurance for this exact amount of time.

I have no partner or children

If you are single with no children, there are only a few reasons you might want to buy life insurance. Of course, this is not definite for everyone and even if you do not have a traditional nuclear family, you might have close friends, siblings, or nieces and nephews you want to leave your pay-out to.

If you would like to leave your assets or property, with everything paid off and in order, to a friend or charitable organisation, then this is where life insurance would come in useful. Another reason is funeral expenses. Many people in the U.K. are not aware of how expensive funerals can be and even the most affordable can cost thousands of pounds.

My children are grown

Even if your children are old enough to fend for themselves, you may want to take the steps to protect them financially in the future at what is sure to be a stressful time. The policy that will cover you until the day you die is whole-of-life insurance. This permanent life insurance could help cover your funeral costs, your children’s daily expenses, and the costs linked to your death, such as the inheritance tax.

In the UK, the inheritance tax is due on estates worth more than £325,000. If your estate exceeds this, it will be taxed. As the pay-out from your life insurance counts as part of your estate, this can push you over the threshold. However, there is a straightforward step you can take to avoid the inheritance tax and that is — setting up your policy in trust.

Where you are in life

I am over 50

Although it is better to look for life insurance early on, there is an insurance policy tailored just for your age group called over 50s life insurance. Anyone will be accepted for this and you do not need to worry about passing medical or lifestyle checks.

As with whole-of-life insurance, a pay-out is guaranteed as this will extend until your death. You may want to consider this if you would like to financially help your family after you pass away with living or childcare expenses or even just to help pay towards your funeral,

I am looking to buy a house

Although it is not a legal requirement for you to have life insurance to get a mortgage, many mortgage lenders will request that you do.

This can also give you peace of mind that your family members can continue to live in their home if you suddenly pass away. Many people choose to get decreasing-term life insurance for this reason. It is a term insurance policy which means you can set it for twenty years, for example, or however long your mortgage repayments will run on. The premiums and pay-out will decrease each year so as to sync in with your mortgage.

I am young and healthy

Many people don’t think it is worth getting life insurance if they are young but remember that the earlier you get it, the more affordable it will be. Even if you do not think it is necessary to get life insurance you may want to consider critical illness cover.

This is a policy that will pay out to you personally if you are diagnosed with an illness or disability which means you can no longer work. If you are dependent on your salary to live on this could be invaluable if you face difficulties later on in life.


Finder.com – Life insurance statistics

Statista – Life insurance industry in the United Kingdom (UK)

iam|INSURED – Frequently asked life insurance questions

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Is it worth paying for life insurance?

Yes, if you’ve got children or financial dependents then you should have life insurance to protect them if you die. Martin Lewis and the Financial Conduct Authority recommend that you take out life insurance to protect your family and your home. Generally, life insurance premiums start from as little as £5 per month and will be cheaper for younger adults.

Common myths about life insurance:

  • Life insurance won’t pay out (pays out 98% of claims)
  • People with medical conditions can’t have life insurance
  • Life insurance is expensive
  • Savings can be just as effective as life insurance
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Is life insurance worth it? - iam|INSURED

What is the average cost of life insurance per month?

Based on recent research carried out, the average cost of life insurance is approximately £38 per month and the average level of cover is £152,000. Life insurance premiums also vary dramatically from one insurance provider to another and you can reduce your monthly premiums by shopping around.

Fundamentally, life insurance premiums vary depending on your age, health and the amount of cover that you need, starting from as little as £5 per month. You can also get life insurance to protect your family and your home against financial loss if you die.

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Average cost of life insurance - iam|INSURED

What does life insurance cover you for?

Life insurance is a monthly renewable ‘term insurance’ contract that pays out a cash lump sum or regular payments on death to your family or beneficiaries. Policies are most commonly used for family protection or mortgage protection for your loved ones if you die and your household income reduces, plus the additional issues of losing a parent or carer.

Traditional life insurance will not exclude any pre-existing medical conditions and will cover suicide after 12 or 24 months. You can also use life insurance for business protection purposes as well as tax-efficient business life insurance for directors or key people.

What are the disadvantages of life insurance?

The biggest and most common problem that consumers have with life insurance is the cost and the monthly premiums. This is the top reason for policy cancellations and why more people don’t take out life insurance to protect their family.

Another key disadvantage with life insurance is that it holds no investment value, nor can you cash it in. Life insurance works like any other traditional general insurance policy (e.g. car insurance, house insurance, pet insurance etc.), you pay a monthly premium and it will pay out in the event of a claim. Some people decide to use savings instead of taking out life insurance but you need to make sure that you have sufficient savings to cover the costs of death for your family.

Why do I need life insurance?

The fact is that nobody actually ‘needs’ life insurance, but it is strongly recommended that families and couples have cover to protect their loved ones in the event of death. Martin Lewis recommends life insurance and says “this is something that every parent, partner, or person with any other type of dependent needs to consider”.

Life insurance financially protects your loved ones if you die and pays out a cash lump sum to repay your mortgage, pay for school fees, replace lost income, and pay for regular outgoings. Mortgage life insurance is not linked to your mortgage debt so you can use it to pay off some or all of your mortgage.

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