How much life insurance cover do I need?
Key takeaways
Life insurance is an insurance policy that provides a tax-free lump sum payment to your beneficiaries if you die during the term of the policy
How much life insurance you need depends on your circumstances - partner, children, financial commitments and debts
Life insurance needs change over time, so revisiting your policy regularly is important
You don’t necessarily need to buy life insurance to get a mortgage, but it’s a good idea if you get a joint mortgage with someone else
What do I want my life insurance to cover?
You generally want your life insurance payout to cover the essential financial needs of your loved ones if you were no longer around. This might include paying off the mortgage balance, paying for childcare costs, covering everyday living expenses, and ensuring your children’s education costs were taken care of.
It might also be important to include funds for funeral expenses and cover any outstanding debts, so your family wouldn’t be left with financial stress during a difficult time. Ultimately, you want to provide peace of mind that your family’s future is secure no matter what happens.
There are different types of life insurance to suit various needs and budgets. Whole-of-life insurance offers a guaranteed payout whenever you pass away. Term life insurance is cheaper as it will only provide cover for a set number of years (the term).
How long do I want to be covered for?
The length of time your life insurance should cover you depends on your personal circumstances and financial commitments.
Typically, it’s wise to have cover in place for as long as you have significant financial responsibilities- such as until your mortgage is paid off, your children are financially independent, or other debts are cleared.
For many people, this means taking out a term life policy that lasts 15, 20, or 30 years.
However, if you want to provide lifelong protection, for example to cover funeral costs or inheritance tax, a whole of life policy may be more suitable.
Types of term life insurance
There are several types of life insurance available:
Level term life insurance
Term life insurance policies last for a set number of years. If you die within this term, your loved ones receive a lump sum - how much this will be depends on your level of cover. With level term insurance, the payout amount remains the same regardless of how long you've been paying into the policy.
Decreasing term life insurance
In decreasing term cover, the cash lump sum amount decreases over time. This type of term policy is typically a cheaper option and is often used to cover a repayment mortgage. As you pay off more of your mortgage, your family will need less to settle the debt if you die.
Whole of life insurance
Whole of life insurance is a type of life insurance policy that guarantees a payout to your loved ones whenever you die, as long as you continue to pay the life insurance premiums. Unlike term life insurance, which only covers you for a set period, whole of life cover lasts for the rest of your life. It is sometimes called life assurance.
Premiums can be higher than term insurance because a payout is guaranteed.
Family income benefit
Family income benefit life insurance is a type of term life cover in the UK that pays out a regular monthly or yearly income to your family, rather than a lump sum.
It’s often used by parents or partners who want to ensure a steady income to cover bills, mortgage payments, or day-to-day expenses, providing financial stability during a difficult time.
Joint vs. single policies
Married or cohabiting couples can either buy two single life insurance policies or a joint life insurance policy.
Joint insurance covers two people under one policy. If one person dies, the other receives the lump sum. It can be level or decreasing term, and it's often cheaper than two single policies. However, most joint policies only pay out a sum of money once - on the first death.
How much life insurance do I need?
Determining the right amount of life insurance cover is essential to avoid being underinsured or overpaying for unnecessary cover.
The amount of life insurance cover you need depends on your personal financial situation and the needs of your dependants.
When it comes to your mortgage, aligning your life insurance with the value and term of your mortgage can prevent over-insuring. For a repayment mortgage, our guide 'Do I need life insurance for my mortgage?' can offer detailed insights. Those with an interest-only mortgage should be mindful of inflation and interest rate fluctuations when determining their cover needs.
You should also consider your outstanding debts (like loans or credit cards), plus enough to cover future living expenses for your family, such as childcare, education, and household bills.
Funeral costs can also be covered by life insurance. Depending on your concerns about inflation, you might opt for an index-linked or whole-of-life policy to ensure these expenses are met.
To determine how much cover you need, you can use MoneySuperMarket’s life insurance calculator.
📣 Did you know? 1 in 29 five to sixteen-year-olds has been bereaved of a parent or sibling - that's a child in every average class, click here for more information
What is a beneficiary?
A life insurance beneficiary is the person (or people) you choose to receive the payout from your life insurance policy when you die. Beneficiaries are usually a partner, child, or close family member, but it can be anyone you nominate - including a friend, charity, or even a trust.
Naming a beneficiary ensures the money goes directly to them, often avoiding delays and potential inheritance tax if the policy is written in trust.
📌 You can name multiple beneficiaries and decide how the payout is split, and it’s important to keep your choices up to date as your circumstances change.
What is critical illness cover?
Critical illness cover is an insurance policy that pays out a tax-free lump sum if you’re diagnosed with a serious illness listed in the policy, such as cancer, heart attack, or stroke.
It’s designed to help you cope financially if you're unable to work or need time to recover, covering things like mortgage payments, medical treatment, or everyday living costs.
Critical illness is often sold alongside life insurance. If you don’t have dependants (i.e. you are single and childfree), your financial adviser might suggest it as a more suitable protection policy than life insurance.
You might also want to pay for private health insurance - this will cover the cost of private healthcare in some situations, meaning you won’t have to wait for appointments on the NHS. Income protection is another option - this generally covers your income if you can’t work due to accident, illness or unemployment.
What is over 50s life insurance?
Over 50s life insurance is a type of whole-of-life policy designed specifically for people aged 50 to 80 (sometimes up to 85).
It guarantees a fixed, tax-free payout to your loved ones when you die, as long as you keep up with the monthly premiums.
Unlike standard life insurance, acceptance is usually guaranteed with no medical questions or health checks required. This makes it a popular choice for those who might struggle to get traditional cover due to age or health conditions.
The payout is often used to help cover funeral costs or leave a small inheritance.
📌 However, it’s important to know that if you live for many years, you could end up paying more in premiums than the policy will pay out.
When should I review my life insurance policy?
You should review your life insurance policy whenever your circumstances change significantly. Key life events to trigger a review include:
Getting married or entering a civil partnership
Having a child or adopting
Buying a home or increasing your mortgage
Getting divorced or separating from a partner
Starting a new job or experiencing a major income change
Taking on new financial responsibilities (e.g. caring for a relative)
Receiving an inheritance or large financial windfall
💡 Top tip: Regular reviews help ensure your cover still matches your needs and that your loved ones remain properly protected.
How can I find the best life insurance cover?
To find the best life insurance cover, start by assessing how much protection you need based on your financial responsibilities, such as a mortgage, debts, and dependants.
Choose the right type of policy - such as term, whole of life, or family income benefit - and get a life insurance quote from multiple insurers, considering not just price but also policy features and exclusions.
How much your life insurance costs will largely depend on:
the amount of cover
the term length
Check the insurer’s reputation and claims history, and consider additional options like critical illness cover if relevant. Placing your policy in trust can speed up the payout and reduce inheritance tax.
Frequently asked questions
Can I cash in my life insurance policy?
Some whole-of-life insurance policies have an investment element and can be cashed in or surrendered before you die. But read the small print and take professional advice before you do this, as the cash value of your policy may be significantly less than the amount you paid in premiums over the years. There could be a fee to cash-in your policy too.
You usually can’t cash in term life insurance policies.
How do you choose how much life insurance you need?
A quick way to calculate how much life insurance you need is to multiply your annual salary by the number of years you think your family would need financial support.
Another option is to add up your mortgage, debts, household bills and other expenses and work out how much your family would need a year if they didn’t have your income.
You might want to factor in future family expenses too such as university, weddings and deposits for your children’s first homes.
What’s the minimum amount of life insurance you need?
Life insurance isn’t a legal requirement and there isn’t a minimum amount of cover you are obliged to buy. However, as a minimum, many people aim to have enough cover to pay off their mortgage should they pass away unexpectedly – this would mean your family could continue to live in their home mortgage-free.
Do you need life insurance to get a mortgage?
No, you don’t need life insurance to get a mortgage. However, life insurance can help your loved ones pay off any outstanding mortgage in the event of your death, meaning they can stay in their home at what would already be a difficult time.
Is it cheaper to pay life insurance annually?
Most people pay life insurance premiums monthly. But you can also pay quarterly, every six months, or annually.
Some insurers offer a discount if you pay annually, so this can be a cost effective option if you have the cash available.
Author
Rachel Ditchburn
Former Senior Commercial Manager
Rachel is a former Senior Commercial Manager at MoneySuperMarket, where she oversaw the Protection, Pet and Leisure Insurance channels. Outside of work, Rachel is a keen cook and enjoys live music,...
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Emma Lunn
Personal finance expert
Emma has written about personal finance for almost 20 years, with a career spanning several recessions and their inevitable consequences. Emma’s main focus is helping people learn to manage their...
