Life Insurance FAQs

A life insurance policy provides financial protection for your loved ones in the event of your death. It pays out either a tax-free lump sum or regular income to your chosen beneficiaries. This cash sum can help cover outstanding debts, repayment mortgage, daily living expenses, or other financial commitments.

If you’re single with no dependents or major debts, you might not need life insurance cover. But if you have children, a partner, or financial commitments like a mortgage, a life insurance policy can protect your loved ones' future and provide peace of mind.

A term life insurance policy covers you for a set policy term, usually 10, 20, or 25 years. If you die within the term, the policy pays out the agreed cover amount, which is often determined by the premiums paid. If you outlive the term, the policy ends and no money is paid. Term policies are popular because they offer high coverage for a lower monthly premium than whole of life policies.

A life assurance policy such as a whole of life policy lasts indefinitely and delivers a payout whenever you die, even if it’s decades from when you took out the policy. It’s called assurance because the payout is guaranteed. Conversely, a term life insurance policy lasts only a specified period of time and your family won’t be able to claim on it if you die after the term has ended.

Decreasing cover, also known as mortgage life insurance, reduces over time, in line with your repayment mortgage. It’s ideal if your main concern is paying off a mortgage balance, and it typically costs less than level cover, where the payout stays the same.

You’ll need to consider your personal circumstances, including the amount of your mortgage, size of your family and your usual living standards, when selecting a level of coverage. Ten times your salary is a good benchmark for the sum insured, but take a close look at your family’s budget before committing. If you’re opting for a policy with a lump sum payout, consider the sum that would pay off the mortgage on your family home and alleviate any immediate financial woes for your survivors. If opting for a policy that pays out an income, consider your family’s current monthly outgoings, including mortgage payments or rent.

You’ll also have to weigh the value of any future payout against the cost of premiums today. Don’t commit to a policy with premiums you can’t afford. If you fail to make the payments, your policy will be cancelled and thus worthless for your beneficiaries.

It’s wise to match your policy term with your biggest financial responsibilities. This could mean your mortgage term or until your children become financially independent. That way, your life policy protects your loved ones when they need it most.

The level of your premiums will depend on the amount of the potential payout (the sum insured) and the risk your insurer thinks you pose - i.e. how likely they believe you are to die during the term of the policy and thus if, and how much, they’ll have to pay out. Your premiums will, therefore, be influenced by your age and health, including pre-existing medical conditions, whether your smoke, how much drink, and how much you weigh. Insurers will also consider your occupation and how hazardous it is. Young, thin non-smokers who drink moderately or less, have no history of illness or longterm conditions, and work desk jobs will find the cheapest life insurance premiums. Use our life insurance comparison engine to get some accurate quotes and find out how much you’d have to pay for your cover.

Yes, many life insurance policies offer additional critical illness cover for an extra cost. This means the policy pays out if you’re diagnosed with a serious medical condition like a heart attack, cancer, or stroke. It provides a cash sum to help with treatment costs, lost income, or home modifications.

A critical illness policy typically covers a range of critical illnesses, including:

• Heart attack
• Stroke
• Cancer
• Multiple sclerosis
• Organ failure

Always check your policy summary or policy documents, as restrictions apply and cover varies by provider.

Many term life insurance policies include terminal illness cover. This means the policy will pay out early if you’re diagnosed with a condition that’s expected to result in death within 12 months. Confirm this benefit in your current policy or policy booklet.

Few people can find no life insurance products, but pre-existing medical conditions like diabetes can make life insurance more difficult to obtain and more expensive to buy. Some insurers will exclude you outright if you’re unwell, while others will grant you coverage but with high premiums. They may also exclude any deaths from the pre-existing condition, meaning that if you die of the condition, your family won’t be able to claim on the policy.

You might have to obtain a life insurance policy from a specialist provider if you have a serious medical condition - and you’ll often pay a premium on your premiums for it.

Life insurance payouts are not subject to income tax or capital gains tax, but they could be included in your estate and become liable for inheritance tax. To avoid this, you can write your life cover ‘in trust’, keeping it separate from your estate. Consult independent financial advice or a financial adviser, and also contact legal experts  for help with this.

Life insurance policies may not pay out if the policyholder dies due to:

• Suicide (within a certain period)
• Drug or alcohol abuse
• Participation in hazardous sports
• Death in war or acts of terrorism

Always read the policy documents to understand exclusions and limits.

Yes, you can take out a joint policy with a partner. It’s often cheaper than two separate policies, but typically only pays out once – usually on the first death. It’s ideal for couples with shared financial commitments like a repayment mortgage.