What should I know before getting life insurance?
Key takeaways
In the event of your death, life insurance could give your dependents a sum of money to help cover costs like mortgage payments and the cost of your funeral
There are lots of different types of life insurance and the right one for you will depend on your personal circumstances
The cost of life insurance will depend on factors such as your age, your lifestyle, your health and the length of the policy

Is a life insurance policy important?
There is no legal requirement in the UK to have a life insurance policy. However, if you have people who depend on you, such as a partner and children, then you may want to get life insurance to give them financial support should you die unexpectedly or be diagnosed with a terminal illness.
If you don’t have any dependents but you have a repayment mortgage it still might be a good idea to take out life insurance as the payout could ensure the mortgage debt is paid off and the beneficiaries of your will can inherit your home.
Some mortgage lenders may also make it a condition of the mortgage that you have life insurance, in the same way that some stipulate you have home insurance.
Why would I need life insurance?
In the event of your death, a life insurance payout could cover:
Mortgage payments
Funeral costs
Household bills
Debts
Personal loans
Childcare costs
Future expenses such as your child going to university
Leaving a gift for your loved ones or to support a charity
What happens if I don’t have life insurance?
If you die without life insurance then your loved ones won’t receive a payout from an insurance provider.
If you have a property with a mortgage then that may need to be sold to repay the mortgage and any other debts.
Your loved ones may struggle to pay bills and may have to cover the cost of your funeral through savings or by taking out a loan.
What are the different types of life insurance?
Whole of life insurance, also known as life assurance or cash value life insurance, is a type of policy that remains in effect for your entire life, provided your premiums are paid. It means that when you die, your family or other chosen loved ones will receive a lump sum payout.
You can choose between:
Balanced cover: Your premiums and payout amount remain the same throughout the policy
Maximum cover: Your premiums are invested with the potential for reduced costs or a larger sum upon death. However, there's a risk of increasing premiums
Whole life is usually more expensive than other types of life insurance.
If you take out Over-50s life insurance it tends to be a whole of life insurance.
Term life insurance is designed for temporary needs. It offers:
Cover for a specified term, such as 10, 20, or 30 years
A lump sum payment to beneficiaries if the insured passes away during the term
Affordability, making it a popular choice for young families or those with specific time-bound financial obligations such as a mortgage
There are four types of term life insurance cover:
Decreasing term life insurance- the amount of cover diminishes over the policy term, usually in line with a loan or mortgage
Level-term life insurance - an unchanging level of cover from the start to the end of your policy
Increasing term life insurance - the cover increases over time, normally set to match the rate of inflation. This can be useful if the cost of living increases
Family income benefit - rather than a lump sum this pays out in monthly increments up until the end of your policy’s term
Whole life insurance policy
Term life insurance policy
How do I choose the right type of life insurance policy?
The right life insurance policy for you depends on your personal circumstances but it’s worth considering:
Your budget
The amount of overall cover you would like
Your financial outgoings, and how much these would be without your income
Any other assets you own, such as other property or investments
What savings you have
How long you would like cover for
Your age
You can use our life insurance calculator to help estimate how much cover you might need, taking into account your debts, the amount of money you would like to leave and any existing life policies.
You could also speak to a financial adviser to understand more about how life insurance works and to work out the right cover for your needs.
Do I need critical illness cover?
Critical illness cover provides a tax-free lump sum payment upon diagnosis of a specified serious illness and can be used to cover debts, home adaptations, or daily living expenses. It can be added to your life insurance policy or it could be a standalone policy.
It’s not the same as terminal illness cover, which insurers often include as standard in life insurance policies. Terminal illness cover usually pays out if you are diagnosed with an incurable illness, such as advanced cancer, and your life expectancy is less than 12 months.
You might want to take out critical illness cover if:
You’re main breadwinner in your family
You don't have enough savings to cover your living costs
You don't have workplace benefits like long-term sick leave
Do I want cover for another person?
If you are married, in a long-term relationship or have shared financial responsibility with another person (perhaps you have a mortgage with a friend or you have a business partner) then you could consider taking out a joint life insurance policy.
Joint life insurance covers two people under one premium. It pays out a lump sum when one or both of you die. It can be a cheaper option than two single policies but a joint policy pays out only once.
It’s also worth bearing in mind that you might not both need the same level of cover. If, for example, one of you has a death in service benefit from their employer.
How do I decide who the money goes to?
You can name who you want the insurer to pay the sum of money from your life insurance to. The person (or people) are known as your beneficiary (or beneficiaries). To name them you’ll usually need to fill out a beneficiary form from your insurance company.
You can also name beneficiaries in your will.
If you name more than one person you will need to decide how much of the payout each will receive.
You could also consider putting your life insurance policy in trust to protect it from inheritance tax.
When might an insurer not pay out?
There are certain circumstances, such as if you pass away due to suicide in the first year or two of your policy, when your insurer might not pay out. It’s important to check for any policy exclusions and to be honest with your insurer about relevant medical information or your insurer may not pay out in the event of your death.
How much does life insurance cost?
Life insurance can cost as little as £2.67* per month.
The cost of your life insurance will depend on factors such as:
Age
If you have any pre-existing medical conditions
Your family’s medical history
Whether you’re a smoker
How much alcohol you drink
If you’re obese
If you have a dangerous job or hobby
The length of the policy or policy term
Find out how you can reduce the cost of life insurance.
📣 Did you know? 22% of people MoneySuperMarket surveyed who had never got a quote for life insurance assumed it would be too expensive.
Can I cancel my life insurance policy?
Yes, you can cancel life insurance. There is a 30-day cooling off period from the date the policy begins or the date you receive your policy documents, whichever is later. You will usually get a full refund unless that insurer charges an admin fee or a small amount to cover the number of days you had cover. If you cancel after 30 days you need to check your insurance documents to see what your insurer will charge you. Whether you make monthly payments or pay annually will also affect your refund.
Is a life insurance payout taxable?
No, there is no direct tax on life insurance. However, if your life insurance forms part of your estate (what is left behind when you die) then it could be subject to inheritance tax if the value of your estate is above a certain amount set by the UK Government. You can avoid this outcome by putting the policy in trust.
How do I get a great deal on life insurance?
Shopping around is usually the best way to find a life insurance policy that suits your needs and budget.
MoneySuperMarket can do the hard work for you. With us you can compares lots of different life insurance quotes in minutes, including over-50s life insurance, level term insurance and decreasing term policies, to help you find the best cover for your circumstances.