We can’t tell you how much life insurance you need or what policy to get. It’s personal to you and what finances you’ll need to cover when you die. In this guide we’ll cover the different types of life insurance and what to consider before you get a policy.
What type of life insurance policy should I get?
There are 3 types of life insurance, and the policy you choose depends on what you want the policy for:
- Term life insurance - You set the time the life insurance is in place for, often until your youngest child reaches the age of 18, and the amount that is paid out. This is set for the length of the policy, for example a payout of £300,000 if you die within a 15-year term. This can help cover your family’s living costs and your mortgage.
- Decreasing life insurance - This is usually the cheaper option when it comes to premiums. With decreasing life insurance, the amount of money paid out decreases with time. This usually covers your mortgage as the amount owed will also decrease over time.
- Whole of life insurance or over 50s life cover - This lasts for the whole of your life and the premiums are generally more expensive than with term or decreasing life insurance. It’s designed to cover funeral costs and you usually pay premiums for the rest of your life. It’s less common than the other types of policy we’ve listed.
You can also get:
- Critical illness cover - This is a separate cover option and usually some of your payout is put aside to cover any costs associated with critical illness.
- Terminal illness cover - this pays out if you're diagnosed with a terminal illness which you'll die from within a certain amount of time.
When you compare life insurance quotes, we don't ask what kind of policy you want. Instead, we ask you "What do you need the insurance to protect?", with the following options:
- Mortgage: If you select this, we'll then ask you if you have a repayment or interest-only mortgage
- Living costs: If you select this, we'll ask you if you want your payout to be an as an annual income or a lump sum
- Mortgage and living costs: If you select this we'll just ask you how much cover you need and the policy length
The type of life insurance policy for you depends on your own circumstances. This includes:
- Your family situation
- The size of your mortgage
- Your outstanding debts
- The number of people (if any) who are financially dependent on you
Should I get life insurance cover for my partner too?
That’s up to you - they can often be cheaper if you’re trying to save money. These policies pay in one lump sum when the first partner in a couple dies.
For example, if you had a joint life insurance policy and one person died, the remaining partner would have a lump sum of money to put towards their expenses. This could be to pay the mortgage or to help with childcare costs.
But it’s important to find a policy that provides enough cover for your needs. Because if the surviving partner also died, there’s no additional payout.
How long should I get life insurance for?
The typical length a life insurance policy is 20 to 25 years. This usually lines up with an outstanding mortgage, though it could be shorter or longer depending on your reason for getting it.
Here we list some of the most common reasons for buying life insurance, and calculate how long you might need it for.
- Life insurance to cover a mortgage: This should cover the remaining length of your mortgage term.
- Life insurance for family members or financial dependents: Your policy should cover your family members until they’re no longer financially dependent. Usually this is until the youngest child turns 18 but it could be older if you want the policy to also cover university fees.
- Life insurance for your whole life: Whole-of-life insurance covers the whole of your life. This could be used if you want to be able to provide your family or loved ones with a sum of money at any point when you die.
Why do I need life insurance?
Some common reasons for wanting a life insurance policy include:
- You’ve bought a new home: Your life insurance is there to cover your mortgage payments
- Having children: Life insurance money could be used for your children, from nursery costs to university fees plus all the other daily costs involved with having kids.
- For inheritance reasons: If you want to use your life insurance policy to leave surviving family members with an inheritance
- Funeral costs: Funerals sometimes cost thousands and a lump sum of money could be used from your life insurance policy for this.
Life insurance isn’t a legal requirement, but it's worth considering - especially if you've had a big life change.
How much life insurance cover should I buy?
To work out how much life insurance cover you need, take some time to look at what the money would be used for and your reasons for needing a policy:
- If you want to cover your mortgage, the payout should be the same as what’s left on the loan. Use our life insurance calculator to figure this out.
- If you want to provide your family with a regular income after your death, look at your current outgoings and future costs to work out an accurate figure to get sufficient family life insurance.
- If you’re over 50 and you want cover for your funeral costs, the amount might depend on what you can afford to pay in premiums.
You might want to consider the cost of your policy too. The amount of cover and the length of time your policy lasts can impact the price you pay for your monthly premiums. But the following also affects the cost:
- How old you are
- Your health
- If you’ve ever smoked
- Your lifestyle
- Where you live
- Your family medical history
- Your profession- the more hazardous your job, the higher your premiums are likely to be
Does the level of life insurance cover change over time?
With some policies, yes. If you buy a decreasing life insurance policy, the amount of cover and your monthly payments should go down over time. These policies are usually for mortgage repayments because as you repay a mortgage there’s less to pay on it.
With term life insurance the level of cover only changes if you request a change.
It’s possible to change your life insurance policy at any time. For example, if you pay your mortgage off sooner than expected you could lower the overall amount of cover. Similarly, if you move into a property with a bigger mortgage you might want to increase the level of cover you have.
Speak to your insurer first to see if this is possible and how much more - or less - it could cost you. You can then either stay with your insurer, or switch to a new insurer that offers a better deal.
Pros and cons of having a life insurance policy
Pros of life insurance
- It provides your family with money if you die
- Your family could cover outstanding mortgage payments
- It pays out on death to your beneficiaries
- If you write the policy in trust, it’s protected from inheritance tax
Cons of life insurance
- You pay a monthly premium for it
- The cost rises for buying a new policy as you get older
- The cost could be high for those with pre-existing medical conditions
- If you live longer than the policy term, you get no payout