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Life insurance FAQs

With so many types of life insurance policy available in the UK, it can be confusing for the best of us knowing what kind of policy to take out. In this guide, we aim to clear up some of the most common customer queries and misunderstandings concerning life insurance, so that you can have a better idea of what policy will suit you best. 

In This Guide:

What does life insurance cover?

A life insurance policy does what it says on the tin: it insures your life and thus pays out after your death - either in a lump sum or a monthly or annual income, paid to the beneficiaries named in your policy.

What is term life insurance?

Most life insurance policies are term policies which last just for a designated period of time - often 10, 20, or 25 years - and then lapse. If you die after the policy has expired, your survivors won’t receive a payout. Term policies are cheaper than the whole of life policies that last indefinitely and make up the bulk of life insurance products sold.

How long should the term of my policy be?

Many people try to sync the length of their term life insurance policies with their financial and personal obligations, for instance timing the expiry of a policy with the clearing of their mortgage balance and the adulthood of their children.

How much life insurance do I need?

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.

How much will my premiums be?

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.

What is life assurance and how does it differ from life insurance?

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.

Can I take out life insurance if I have a pre-existing condition?

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.

Will my family have to pay tax on a life insurance payout?

The payouts from a life insurance policy are not subject to income or capital gains tax. They can, however, be considered part of your estate and therefore subject to inheritance tax. But you can protect any life insurance proceeds from inheritance tax by writing the policy in ‘trust.’

In what cases will my policy not pay out?

Life insurance policies will come with exclusions which will be detailed in their terms and conditions. Typically, policies will not pay out if the policyholder dies as a result of suicide; alcohol or drug abuse; as the result of a hazardous sport or hobby, like mountain climbing; or in a war or as a result of terrorism.

Do I really need life insurance?

If you’re single and have no dependents, life insurance is probably a precaution you can forgo. But if you have family relying on your income, who would struggle to manage financially in the event of your death, you should consider a life insurance policy.