Life Insurance

Life insurance pays out a lump sum, or a regular income, to your family if you die during the policy term. It exists to make sure the people who rely on your income are not forced to sell the family home or change their lives fundamentally because your earnings stopped.

Premiums are based on your age, health, lifestyle and the amount of cover, and are usually fixed for the life of the policy if you choose guaranteed rather than reviewable premiums.

Work out how much cover you need

Our free life insurance calculator adds up your debts, income and dependants and returns a needs-based cover figure in under a minute.

Level term assurance

The cover amount stays the same throughout the term. Suited to replacing income, protecting an interest-only mortgage, or leaving a fixed sum behind.

Decreasing term assurance

The cover reduces roughly in line with a repayment mortgage. Cheaper than level term, and the standard choice where the only goal is clearing the mortgage.

Family income benefit

Pays a regular monthly income to your dependants for the rest of the term rather than a single lump sum. Often easier for a surviving partner to manage than a large one-off payment.

Whole of life

Covers you for life rather than a fixed term, so it always pays out. More expensive, and generally used for estate planning — funding an expected inheritance tax bill, for instance — rather than mortgage protection.

Rather than picking a round number, build the figure from what would still need paying:

• The outstanding mortgage balance, and the years left to run on it.
• Other debts that would not be written off on death.
• Your household’s annual running costs, multiplied by the number of years your dependants would need support.
• Childcare and education costs a surviving partner could not absorb alone.
• Less anything already in place — death in service through your employer, existing policies, and savings.

Set the term to the longest commitment, not the shortest. Cover that ends when the mortgage does may leave a gap if your children are still dependent.

It keeps the payout out of your estate. A policy left outside trust normally forms part of your estate, which can expose it to inheritance tax at 40% — on money specifically intended for your family.

It pays out faster. Proceeds held in trust do not have to wait for probate, so your family can access the money in weeks rather than months, at exactly the point they need it.

It is usually free. Most insurers provide trust forms at no cost, and an adviser will complete them with you when the policy is set up. It is one form and it is very often skipped.

Life insurance is medically underwritten, so the price and terms you are offered vary between insurers based on your health history. An adviser can:

• Work out the right cover amount, term and structure for your commitments rather than a round figure.
• Compare the whole market, including insurers who take a more favourable view of specific medical conditions or occupations.
• Set the policy up in trust and keep the beneficiaries current after a marriage, divorce or new child.
• Coordinate it with critical illness and income protection so you are not paying twice for overlapping cover.