Life insurance is one of the most straightforward financial products — it pays a lump sum when you die, protecting the people who depend on your income. Despite being cheap (often under £10/month), many UK adults with financial dependents don't have it. Here's everything you need to know.
Do You Need Life Insurance?
Life insurance is primarily for people who have financial dependents — a partner, children, or others who would suffer financially if your income stopped. If you're single with no dependents and no mortgage, you probably don't need it. If you have a partner, children, or a large mortgage, life insurance is essential.
- NEED IT: children, partner dependent on income, mortgage
- PROBABLY NEED IT: joint mortgage even without children
- MAY NOT NEED: single, no dependents, renting
- Already covered? Check death in service via your employer (often 3-4× salary)
- Check pension schemes — some include life insurance benefits
What is Death in Service?
Many employers provide Death in Service benefit — a multiple of your salary (typically 3-4×) paid to nominated beneficiaries if you die while employed. Check your employee benefits pack. If you have this, you may need less personal life insurance.
How Much Cover Do You Need?
A common guide is 10× your annual salary, but the right amount depends on your mortgage, dependents, and income replacement needs. Calculate: outstanding mortgage balance + number of years of income needed for dependents × your annual salary. Many people have their mortgage as the primary driver — a decreasing term policy matches the mortgage balance as it falls.
- Rule of thumb: 10× annual salary for broad cover
- Mortgage protection: amount matches outstanding mortgage (decreasing term)
- Income replacement: enough for dependents to live on for X years
- Factor in existing savings, partner's income, Death in Service
- Add funeral costs if no savings to cover them
How Much Does It Cost?
Life insurance is significantly cheaper than most people assume. For a healthy 30-year-old, a £200,000 level term policy over 20 years typically costs £5-£15/month. A 40-year-old might pay £10-£25/month. Smokers and those with health conditions pay more. Critical illness riders add significant cost.
- Non-smoker, 30, £200k/20 years: ~£5-£12/month
- Non-smoker, 40, £200k/20 years: ~£10-£20/month
- Smoker: typically 50-100% higher premium
- Compare via MoneySupermarket, Compare The Market, GoCompare
- Apply before 40 — premiums rise significantly with age
Types of Policy
Level term pays a fixed amount throughout the policy. Decreasing term reduces over time (matches a repayment mortgage). Whole of life has no end date but is more expensive. For most families, a combination of level term (for income replacement) and decreasing term (for mortgage) covers the key risks affordably.
- Level term: fixed payout throughout — good for income replacement
- Decreasing term: falls over time — good for repayment mortgage protection
- Whole of life: more expensive, guaranteed payout — used for inheritance tax planning
- Joint policy: covers both partners (often cheaper, but pays out only once)
- Single policies: more flexible — pay out per person
- Write the policy in trust to avoid inheritance tax on payout
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