What Are The Best Life Insurance Companies In The UK?
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What is life insurance?
Life insurance is an insurance that will pay out to your family if you die.
It's intended to make sure that your family won't be financially ruined if anything happens to you. It can also pay out to make sure that a mortgage or other debt is covered - so even if you don't have a family, your mortgage lender might ask you to take out a policy.
Find out if life insurance covers COVID-19 here.
Do you need a life insurance policy?
You may need a life insurance policy to ensure your family is looked after if anything happens to you.
A life insurance payout could cover:
- paying the mortgage on your family home, if you're the sole breadwinner or you need both incomes to be able to keep up the payments;
- looking after a dependent partner if you have very young children;
- paying for university tuition for your children;
- paying for full time childcare if a non-earning partner dies;
- looking after an aged parent or disabled child, if you're a carer;
- repaying debts.
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You may also be concerned that if you die, your family might have to give up on some of the better things in life - music lessons, horse rising, or holidays. A life insurance policy will ensure your loved ones don't have to make those sacrifices.
What's the worst that could happen?
We took a look at some of the uses to which a life insurance payout might be put. While you might think a bill of £30 or so every week is relatively small, if you have two children and want to give them both extra music lessons throughout their school years, that's an amazing £30,000 bill!
You can see the costs rack up pretty quickly when you're thinking about converting those weekly or monthly costs to an overall capital sum.
| Cost | |
|---|---|
| Repaying average UK outstanding mortgage | £135,000 |
| Childcare for 10 years | £106,000 |
| Average cost of university degree (maintenance and tuition) | £40,950 |
| Cost of music lessons for two children, for ten years | £30,000 |
| Horse riding twice a week for two children, for ten years | £60,000 |
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You may also need a life insurance policy if you take out a mortgage. Many lenders require this as a condition of granting you a mortgage - it will repay the loan if anything happens to you.
If on the other hand you're single, without debts and fancy free - you can probably do without, at least for now! (Though since life insurance is cheaper to buy when you're younger, you might consider getting it arranged now if you see a spouse, mortgage and kids in your crystal ball.)
How does a life insurance policy work?
When you take out life insurance, you pay a monthly premium in return for which, the insurer will pay out a lump sum to your family or other named beneficiary if you die during the term of the insurance.
The insurer invests the premiums that it's been paid, so that it can cover payouts as and when they come due.
That's simple. But life insurance can be quite complex, as it comes in several different forms:
- whole of life, which covers you as long as you live;
- term life, which covers you only until a certain date (such as when your mortgage is paid off);
- joint life, which covers you and your partner together but pays out only on the first (or occasionally on the second) death;
- and over-50s life insurance (which is almost always whole of life).
What does life insurance cover?
Life insurance will pay out a lump sum to your family if you die or are diagnosed with a terminal illness within the term of the policy.
Normally, life insurance policies pay out if you are diagnosed with a life expectancy of less than twelve months. Every policy has its own terms and exclusions, so you need to check the policy to see the exact details and make sure you get precisely the cover you need.
Life insurance policy may include:
- Terminal illness
- Accidental Death Benefit
It can include:
- Funeral expenses
- Free gift.
What does life insurance not cover?
Life insurance will generally not pay out in the following circumstances:
- if you commit suicide,
- if your death occurs due to drink or drug abuse,
- if you are killed while committing a reckless or dangerous act. (If you fancy sky-diving without a parachute you're unlikely to be covered. However, normal sports like skiing are not normally excluded.)
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If you have a pre-existing medical condition you may also be asked to take a policy which excludes that condition.
What are the different life insurance policy types?
While the underlying idea is the same, life insurance comes in several different types which operate slightly differently. The most common types are:
- level term life insurance,
- decreasing or increasing term life insurance,
- joint life insurance (for couples), and
- whole of life insurance.
You may also find special over-50s policies, as well as policies which add critical illness cover to regular life insurance. Check out our guide about the different life insurance policy types.
What is Whole of Life assurance?
Whole of life assurance covers you for your entire life, as long as you keep paying the premiums.
Good to know
It's called 'assurance' not 'insurance', and the reason for this is technical. Insurance covers you for a risk that may or may not happen, like a house fire.
Most of us (fortunately) never have a house fire. Many drivers never have a car crash, and their motor insurance never pays out. But since mortality is a 100% probability, this is a form of cover that will always pay out, and that's why it's called 'assurance'. Check out our guide about whole of life insurance.
What is Term Life insurance?
With term life insurance, you pick a certain period of cover when you buy the policy, and the insurance will only cover you if you die within that time.
For instance, you may want to be covered while you have a mortgage, and you have a 25 year mortgage. Or you may want to be covered till your children are all 25 and starting to progress in their careers. Check out our guide about term life insurance.
What is decreasing/increasing term life insurance ?
Most policies cover a given level of payout for the entire term of the insurance. Decreasing and increasing term life insurance change the level of cover over the term of the policy.
- Increasing term life insurance may be indexed so that the payout takes account of inflation. That protects your family against rising prices and ensures their standard of living will still be maintained. However your premiums may increase from time to time.
- Decreasing term life insurance reduces the sum insured. It's usually linked with a repayment mortgage and is designed to ensure your mortgage is paid off if you die. As you pay off the amount borrowed, the sum that you need to insure reduces. Payments will stay the same throughout the length of the policy.
What is Level term life insurance?
With a level term life insurance, both your premiums and the sum insured remain the same for the length of the policy. The payout is fixed.
Obviously there's a risk that if inflation takes off, that amount could be worth much less to your family in, say, 15 years' time than it is now.
When do you need each kind of policy?
| Policy types | When is it recommended ? |
|---|---|
| Whole life | To leave a nest egg for your family or to cover an expected inheritance tax bill |
| Decreasing term | To cover a liability that becomes smaller over time, eg your mortgage as you pay it off |
| Level term | To cover a liability that remains the same, eg family living costs |
How much is a typical life insurance policy?
Obviously there are a lot of factors affecting the amount you'll pay in premiums. However, as a rule of thumb a healthy person can usually secure £200-250,000 of cover for £15-20 a month.
The exact price will depend on
- your age,
- your state of health and medical history,
- your weight,
- whether you smoke,
- how much you drink,
- your lifestyle (a racing car driver will pay more than Mr Sensible),
- the sum you want to insure,
- the term of the insurance,
- any 'extras' such as critical illness cover that you want added to the policy.
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For instance over-50s will probably pay £27 a month for the same cover that would cost a 29 year old £15 a month. A fit non-smoker at 30 could get £100,000 cover for £5-10 a month; a smoker could pay nearly double.
If you have a critical illness, such as cancer, you may find that it's more difficult and more expensive to get life insurance. Sometimes insurers may want to exclude your pre-existing condition. Most insurers will want an in-depth medical report so it's worth talking to your consultant to see what kind of report you'll get and how that might affect your insurance.
How much life insurance do you need?
We've looked at some of the best insurers for different types of insurance and different individuals. But of course, your experience may be different depending on your particular needs.
In particular your age will have a major impact on how much you pay, as the table below shows. We looked for the lowest premium we could find. If you're over 50 when you start paying in, you'll pay more than four times what a 25 year old would have to pay.
| Age at start of policy | Monthly premium |
|---|---|
| 20-30 | £53 |
| 30-40 | £93 |
| 40-50 | £124 |
| Over 50 | £181 |
For living costs it's generally not too difficult to work out what you need, if you know your outgoings. For a mortgage, you'll need to cover the amount outstanding - not the total value of your property. You can use our mortgage cost calculator to see how the amount you need to cover will fall over time.
What is life insurance with critical illness cover?
It's nice to know your family will be okay if you die. But what if you fall ill and can't work? Adding critical illness cover will protect your family in this situation too.
There are two types of cover and it's important to know the difference:
- additional cover will pay out if you're diagnosed, and it will also pay out if you die:
- combined cover will pay out either on diagnosis, or if you die, but it won't pay out twice.
Check out our guide to know more about life insurance with critical illness.
Should I take out single or joint life insurance policy?
This isn't quite as easy as it looks, because two single life policies aren't quite the same as a joint policy. If you and your spouse or partner take out a joint policy, it will only pay out when the first partner dies (a 'first-death' policy - 'second-death' policies are also available but they are generally used for the specific purpose of insuring against inheritance tax liabilities). That might be all you need if it's to pay off the mortgage, but then again, you might need more protection if you have young children.
What is a single life insurance policy?
A single life policy covers one individual only. If you have a single policy, and your partner has a single policy, then if either of you dies, the relevant policy will pay out and the other policy will be unaffected.
What is a joint life insurance policy?
A joint life insurance policy covers two lives but will only pay out on one death.
- First-death policies pay out on the first partner's death. This is the kind of policy you'll need to provide for mortgage repayment or for the living expenses of a young family.
- Second-death policies don't pay out on the first partner to die, but on the surviving partner's death. Usually, this kind of policy is used to help the children pay the inheritance tax bill where there's likely to be a large amount of tax to pay.
Who can apply to life insurance?
Life insurance is for everyone, if you have a family, you can take out a family life insurance. If you are a young adult, parents, married or in relationship, or a mum, taking out a life insurance is always a good idea.
Wether you are 18, 20, 25 or under 30 years old, thinking about taking out a life insurance is not too soon.
What is over 50 life insurance?
If you're over 50 insurers consider you a higher risk for life insurance - but you'll still find enough who are willing to take you on. Whether you are 55, 65, 75, 80, you will always be able to find a life insurer ready to cover yourself and your family.
Check out our main guides about over 50 life insurance:
Can I get life insurance if I am under 25?
Yes you can. Whether you are 18, 21, 23 or 24, you will be able to get life insurance.
Check out our specific guides on life insurance for under 25 people.
How can I get life insurance quotes?
Getting a life insurance quote online is a breeze. You'll need to enter a few basic personal details such as your age, height, weight and any health conditions, plus a few lifestyle questions. That's it.
Get your quotes, do a life insurance comparison, decide on your policy, and click 'buy'. It's that simple.
Do remember that if you have health issues, you need to disclose them. If you don't, that could invalidate your insurance. The insurer could refuse to pay out - a waste of your policy money, and potentially a disaster for your family if they can't pay the mortgage.
Why should I write in trust my life insurance policy?
Writing your policy in trust can prevent your family having to pay inheritance tax on the payout.
A life insurance payout is normally counted as part of your estate when you die. If your estate amounts to more than £325,000 in total - including the value of your home - then your heirs will have to pay 40% inheritance tax on it. But if your insurance is 'written in trust' it won't be counted as part of the estate.
That means if your total payout was subject to tax, a £100,000 payout would only be worth £60,000 once tax had been paid.
But there's a second benefit as well. To pay out to your estate, the insurance company will need to see the grant of probate - and that can take up to six months to arrange. Using a trust means the insurance company can pay out more quickly, so your family won't have to wait. If there's a mortgage that needs to be paid, that's a huge benefit.
A trust is set up to benefit particular persons, and is managed by a trustee. For instance, you could make your spouse the trustee to administer the life insurance policy till your children are grown up, or you could appoint a solicitors' firm as trustee. If you think your estate is likely to go through the £325,000 mark, it's worth taking advice to see if you should write your life insurance policy in trust.
Good to know
It's quite easy to do this - most insurers offer it as an option when you open the policy. But remember, it's an irrevocable choice - you can't go back on it, so make sure it's what you want to do.
How can my beneficiaries claim on my life insurance?
If your beneficiaries need to make a claim, they need to get in contact with the insurer. Remember to make sure that your partner/children know that you have a policy, and which insurer it is with. It makes good sense to keep all the policy details somewhere safe, and in a clearly marked file.
The insurer will need to see a certified death certificate. It will then either pay out to the estate, or if the policy is written 'in trust', directly to the named beneficiary.
How can I cancel my life insurance?
If you want to cancel your policy within the first 30 days, the 'cooling off period' for life insurance, you can do so simply by writing to your insurer. It's not a bad idea to email or phone as well. There may be a small administrative charge.
You might want to cancel your policy at a later date for a number of reasons.
- You no longer need it - for instance if it covered your mortgage, but you sold the house and downsized, so you no longer have a mortgage to cover.
- You found a better value policy.
- You simply can't afford to keep up the payments.
The process is quite simple; ring your insurance provider and tell them you want to cancel. They may then send you a form to fill in or ask you to send a letter - each insurer has its own process.
Once your policy has ended you should cancel your direct debit. But don't do that till you know that your insurer has cancelled the policy. If you do it the other way around, your insurer can claim for payments that should have been made up until the date the policy was cancelled.
Our guides on life insurance
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