This depends on whether you write your life insurance into a trust.
If you die during the term of your life insurance, the payout forms part of your estate. Your estate is the sum total of everything you leave behind.
If your estate amounts to less than £325,000, your inheritors pay no tax on it. But if your estate, including your payout, exceeds £325,000, they pay 40% tax on anything above that threshold.
This can be avoided by putting life insurance in trust. Doing this separates your payout from your estate so your beneficiaries get the full amount tax-free. This is even if your estate is over the £325,000 UK inheritance tax threshold.
You’d be wise to do this if your mortgage is more than £325,000. If your payout is over the threshold, the tax you’d have to pay on it may mean it’s no longer enough to cover your mortgage. Putting your policy into a trust is a smart way to ensure it is.
Trusts also usually allow your beneficiaries to get their payout quicker. With a will, your payout may have to go through probate, which can take a long time. With a trust, it normally doesn’t.