People commonly misjudge how much life insurance they need. They either overestimate, splashing out on an extravagant policy with onerous monthly payments, or underestimate, leaving their survivors without enough to clear debts and meet their financial needs.
Our life insurance calculator can help you determined how much life insurance you should buy, into taking into account your family’s particular circumstances, financial situation and needs.
In This Guide:
- How much does life insurance cost?
- How much life insurance cover do I need?
- How can I get cheaper life insurance?
How much does life insurance cost?
The monthly cost of your life insurance premiums depends on:
- The sum insured: The amount of the potential payout. Lower payouts mean lower monthly premiums.
- The risk: How likely your insurer believes it is that you will die during the term of the policy, determining if and how much they pay out. If you're young and in good health, you'll pay lower premiums.
When assessing your risk, insurers will typically take into account some of the following factors:
- Your age: The older we get, the more likely we are to die in the near future. Insurers use calculations based on life tables (also known as mortality tables or actuarial tables), which show the probability that a person of each age will die before their next birthday, to set premiums. Premiums for life insurance are lowest for those in their 20s and then rise precipitously after age 40.
- Your health history: Having pre-existing conditions such as diabetes or heart disease can increase your life insurance costs and exclude you from some policies.
- Your family health history: When applying for health insurance, you’ll often be asked about your parents’ health or at what age they died and of what. A family history of cancer and other serious diseases, particularly at a young age, can lead to higher premiums.
- If you smoke: Smokers pay more for life insurance
- If you drink alcohol and how much a week: While occasionally enjoying a tipple won’t increase your premiums, those who exceed the government’s guidelines for alcohol consumption - 14 units a week spread over three or more days - can expect to pay more for life insurance
- Your weight: Insurers will frequently ask for your BMI. Being overweight increases your health risks and thus your life insurance premiums.
- Your occupation: People in some occupations are more likely to die on the job than others and will consequently pay more for life insurance. For example, pilots, commercial drivers, builders, police officers, firefighters, roofers and scaffolders will all pay more for life insurance.
- Your hobbies: Participating in extreme sports and adrenaline activities like mountain and rock climbing, skydiving, car and boat racing, scuba diving, and skiing and snowboarding can increase your insurance premiums. Your policy may also exclude deaths caused during these activities.
You must be honest when disclosing this information to insurers. If you withholding details about yourself, such as a smoking habit or a windsurfing hobby, insurers can ultimately reject your claims, depriving your family of a payout.
How much life insurance cover do I need?
There’s no one size fits all life insurance policy. The amount of cover you need will depend on you and your dependents’ current financial situation and future needs.
Our calculator can help you arrive at a precise sum. But here are some things you’ll want to consider.
- Your mortgage: Mortgage payments are usually a household’s largest monthly expense. A decreasing term life insurance policy, aligned with your mortgage, can pay off the balance remaining at your death, eliminating a large financial burden for your family.
- Other debts: You don’t want to leave your family paying off your credit card or loan debt. Make sure your life insurance payout can clear these debts.
- Your income: You likely want your life insurance policy to replace your income. If choosing a policy that pays out a lump sum, multiply your income by several years—ten is often suggestions. Other policies pay out annually and can exactly match your salary.
- Childcare: You should consider not only your position as a breadwinner but also the unpaid labour you do around the house, including watching children. Your death could increase expenses for the family, particularly if they need to arrange outside childcare.
- Education: Consider school fees and university tuition for your children, both now and in the future.
- Funeral expenses: The average funeral in the UK costs more than £4,000. Families often cover these costs with life insurance.
How can I get cheaper life insurance?
- Quit smoking: Insurers will usually consider you a non-smoker once you’ve abstained for 12 months, although some require up to five years nicotine-free. But you don’t have to wait to take out a life insurance policy until you’ve logged enough months without cigarettes. Insurers can update your policy and adjust your premiums later when you prove you’ve kicked the habit.
- Lose weight: If you’ve lost weight and maintained your new weight for your at least 12 months, you’ll qualify for cheaper life insurance and can potentially also reduce the cost of an existing policy.
- Choose a decreasing term life insurance policy: The amount these policies pay decreases over time, so they’re cheaper than level-term policies. Sync the policy with your mortgage to pay off whatever balance is outstanding when you die, or with the age of your children, who need less provision as they age.
- Take out only as much cover as you need: While you might be tempted to insure yourself for a very large sum, the premiums on such a policy could be overwhelming. Accurately calculating the amount of money your family would need to get by after your death will keep your premiums affordable.
- Compare policies: Surveying the market, gathering quotes from a range of insurance providers, can help you find the best and most affordable policy for you and your loved ones. A life insurance comparison engine can return dozens of personalised quotes for insurance policies if you fill out a single, confidential form.