Life Insurance Costs & Policies Explained. Who Should Get Cover & What Are the Associated Costs?

Ian Lewis[1]

Ian Lewis

Money Savings Advice Life Insurance Policies Explained. Who Should Get Cover & What Are the Associated Costs

Death is a taboo subject. We don’t like to think about death, nor talk about death with our loved ones. We’d rather ignore it, crossing our fingers and hoping that it doesn’t come our way. Sadly, though, death is one of the very few inevitabilities.

We all die eventually. Though it’s never nice to think about death, it’s something that we can’t avoid. Since we all know death will be a part of our future, shouldn’t we plan for the event?

There are many ways to plan for death. Though making plans might not be comfortable, those plans will be essential. Writing your will means that your belongings go where you want when you die, whilst funeral plans can tell your loved ones what kind of send-off you’d like. Life insurance is also extremely important, and amongst the best gifts, you could ever give to a loved one.

Looking for other information on Life Insurance Policies? This guide has information on payouts and prices, We have also writen extensively about:

We update all our guides regularly. If you are researching Life Insurance Policies and we haven't got an exact guide that helps you, keep coming back as we update daily.


What Is Life Insurance?

Life insurance is a gift for a loved one rather than protection for you. Unless your policy includes critical illness cover, you’ll never benefit from it. Instead, life insurance is for those you leave behind as it pays out after your death.

During the term of your life insurance policy, you’ll pay your monthly premium. Once you die, your life insurance pays out to your chosen beneficiaries.

Your loved ones will be grieving. Losing someone you love is bad enough but imagine if the loss of your income meant that they couldn’t keep their house. Imagine if your family couldn’t keep up with the rent or make the mortgage payments on time. Imagine if your kids had to change schools or if your spouse had to take on an additional job to make up for the household’s lost income. Instead of just losing one parent, your children could feel like they’ve lost both. Life insurance is financial protection. Life insurance could enable your loved ones to continue paying their bills, to keep the lifestyle they had before you died, and to avoid further chaos and disruption.

Meaning of Life Insurance

Life insurance is an insurance policy that pays out upon the policyholder’s death. Just like car insurance pays out if you have an accident and phone insurance if you break or lose your phone, your life insurance policy typically provides a cash lump sum to your beneficiaries.

How Does Life Insurance Work?

When you apply for life insurance, you’ll name at least one beneficiary. After your death, it’s your beneficiary that receives the life insurance payout. Most people choose a partner, spouse, or child to benefit from their life insurance.

There are two main types of life insurance cover, and each type works slightly differently.

What Is Level Term Life Insurance?

When you apply for life insurance, you’ll agree to a policy term and an ‘assured sum.’ The assured sum is the value of the payout if you die whilst your policy is active. Based on this information and several other factors, your insurer will tell you how much you’ll be paying every month. For example, you might pay £15 per month for £250,000 of cover over a 40-year period.

If you die whilst your policy is active, the amount that you’ve agreed will be paid out. That’s the case whether you die on the first day or in the very last hours. However, if you outlive your policy, you’ll get nothing back from your insurer. If you lived for more than 40 years, your policy would end, and you wouldn’t get any money back. If you wanted, you could choose to take out a completely new life insurance policy.

What Is Decreasing Term Life Insurance?

Decreasing term insurance works slightly differently to level term. Over time, the payout gradually reduces. You might choose this option if your spouse needs money to raise your young children if you die, but if that money won’t be needed as much once your children have grown and left home. You might also choose this option if the payout will be used to cover the rest of the mortgage since the mortgage will be decreasing over time, just like the value of your life insurance. Decreasing term insurance is usually cheaper than fixed term.

Insurance companies accept that, in some cases, they’ll pay out more than the customer’s paid in. In other cases, you’ll end up paying more than will ever be paid out. If you’re lucky enough to survive until your policy’s end date, your insurer has gained a lot of free money, and you’ve received no financial benefit. Those that survive will subsidize the policies of those that die during their insurance term. Of course, since you’re still alive, this could be money that you’re happy to lose!

How Much Does Life Insurance Cost?

Your insurance premium will be decided based on the risk you represent. If you survive, your insurer makes a profit. If you die, they’ll likely make a loss.

If you’re healthy and likely to survive the full term of the policy you’ve chosen, your insurance premiums are likely to be very low. If you live an unhealthy lifestyle or have pre-existing conditions, you’re more of a risk, and your premiums will be much higher. In short, your insurer needs to get as much money out of you as possible before you pass away. Or, they need to hope that you survive until the end of your term.

What Affects the Cost of Life Insurance?

Many different things will affect how much you’ll pay each month for your life insurance. Your age is a big factor, but it’ll be balanced with the length of your life insurance term.

A 20-year-old taking out a 40-year policy has a good chance of living past it, but a 70-year-old might not be expected to survive for another 20 years. Though the 70-year-old has picked a shorter term, their prices will be higher as they represent more of a risk. Meanwhile, if a 20-year-old and 30-year-old both choose a 40-year policy, the 20-year-old will pay less every month as they’ve got a higher chance of survival. All this, of course, assumes that there are no other risk factors to consider.

Your lifestyle and habits can also affect the price you’ll pay for life insurance. If you’re obese, a smoker, or a heavy drinker, you’re putting your own health at risk. These habits increase your risk of ill health and death, so they’ll increase your monthly premiums as well. Pre-existing health conditions can have the same effect on your life insurance quotes.

Your insurance price will also be affected by the value of the payout that you’re hoping for. Understandably, a £500,000 payout will result in higher premiums than a cover for just £100,000.

How Many People in the UK Have a Life Insurance Policy?

Research has shown that approximately 23.7 million UK adults have life insurance policies.

The UK has a population of roughly 66.7 million, and around 14.7 million UK residents are under 18. That leaves 52 million adults. Less than half of all UK adults are protected by a life insurance cover.

Interestingly, the age group most likely to have life insurance is the 45-54 age group. This might come as some surprise, as most of the adults with young children to protect are in their 20s and 30s. Those in younger age groups might feel invincible, being confident they’ve plenty of time left, but it’s worth being aware that death can happen at any age. Arguably, life insurance is more important for parents with younger kids.

Who Can Take Out Life Insurance?

You’ll need to be at least 18 years old to take out a life insurance policy. Until you reach adulthood, you can’t enter into a legal, financial contract.

Almost anyone can take out a life insurance policy, though some people may be excluded. If you’re very high risk, it could be hard to find a provider to insure you. Even if you can find a suitable insurer, the premiums might be unattainably high.

Though nobody’s officially excluded, those with conditions like cancer and the morbidly obese can find that getting insurance feels impossible.

What Are the Benefits of Life Insurance for Different Age Groups?

At any age, you might feel like it’s time to take out a life insurance policy. There are benefits to life insurance cover at every stage of life.

What Are the Benefits of Life Insurance for the Over 30s?

If you’re relatively young, you might feel that you’ve got many years left to live. Sadly, though, nobody knows what’s waiting for them around the corner.

Getting life insurance in your 30s is often a very good idea. Policies are cheaper as you’re not much of a risk, as long as you’re relatively healthy. The likelihood is that you’ll outlive your insurance term and will have paid your premiums for nothing, though most people would agree that outliving the policy is far better than the alternative!

Many people in their 30s are raising children and establishing careers. A life insurance payout could look after your family if you’re no longer around. The money paid out could clear your mortgage or help support your spouse and your children, so they can focus on grieving the loss of a loved one and not the loss of income that comes with it.

What Are the Benefits of Life Insurance for the Over 40s?

In your 40s, you could still have many healthy years lying ahead of you. Many of the health complaints that come with old age will not have affected you so far, which means that life insurance premiums (whilst rising steadily) won’t seem unattainable just yet.

You might still have children at home or be supporting them through university. You might not have cleared your mortgage, and several people could rely on the money you bring home every month. Getting life insurance in your 40s will help to protect those you love.

What Are the Benefits of Life Insurance for the Over 50s?

Over 50s life insurance is often advertised as a separate product. At this point in your life, you may already have had and outlived another life insurance policy. Your children might have grown, and your debts might be paid off, so there might not be anyone that’s really depending on the money that you earn day-to-day. As such, you might be happy with a much smaller payout if you die.

Over 50s cover usually includes a smaller assured payout sum. Instead of being used to keep your family afloat, this money might be used for smaller cash gifts or to cover the costs of your funeral. The money might also support your spouse, helping them to pay the household bills.

What Are the Benefits of Life Insurance for the Over 65s?

If you’re over 65, the chances are that you’re reaching retirement age. You might not be earning the salary you once were. You may have a part-time job. Your bills and outgoings may not be as high as they were when you were raising your family. At this point in your life, you might not be as sprightly as you once were. Over 65s, life insurance could take your needs into account.

You might need a smaller payout to leave behind for someone you love, but you may be considered a higher risk as you reach the later years of your life. The payout might not be as essential, but you might still feel that you want to leave some money for funeral costs or cash gifts. You might also need cover to help your spouse with the very last mortgage repayments if you’ve almost paid back your long-term debts but still need to take those final steps.

What Are the Benefits of Life Insurance for the Over 70s?

Over the 70s are, understandably, a bigger risk for insurers. You’re getting into your later years, and though you could still have many healthy years ahead, you might also not outlive your policy. Over 70s policies are often designed to cover the rest of your life, so you can be sure that they’ll pay out however long you stick around for. The whole of life cover has no maturity date, so you don’t need to worry about paying in and then losing all your monthly premiums.

At this stage of your life, it's likely that your loved ones are comfortable and don't need your money. Your own children may already have raised your grandchildren, so financial contributions might be less essential. You might have paid off all your debts and cleared your mortgage, so big payouts are a lot less important. Instead, you might want something smaller – just enough to leave some smaller cash gifts and cover your funeral costs.

Can I Get a Life Insurance Policy for My Children?

It is possible to get life insurance for children, though most people don't even consider it. Life insurance might cover a child's funeral costs, if the worst should ever happen, or could payout – like health insurance – if your child becomes seriously ill.

Some people take out life insurance for their children if they want to be sure they could afford a good funeral if their child passed away. Some people want to make sure that if their child became seriously ill, they could access money to cover their own lost income whilst swapping work for hospital visits.

It's hard to think about a child becoming very ill or passing away, but some parents find that buying life insurance provides them with some peace of mind.

Most of the time, children are suited to what's known as 'rider' insurance. They become a 'rider' on their parent's life insurance policy. Otherwise, a child can have their own policy organised and paid for by a parent. 

When Does a Life Insurance Payout?

Typically, life insurance policies payout after death. Your chosen beneficiaries receive a lump sum that they can have paid into their bank account.

Some policies provide a family income benefit. With these, instead of a one-off lump sum, your beneficiaries receive ongoing payments. They might receive a set amount of money each month, much like a regular salary. You might choose this option if you want your family to always have money coming in, just like they would if you were still alive and earning a regular income.

If you choose a family income benefit policy, be aware that it only pays out every month until the end of your insurance term. If you died just six months before your policy's end date, your family would only receive payments for half a year. If you're making this choice, make sure you choose a policy that will last for as long as it's needed.

Some life insurance policies include terminal illness cover. Instead of paying out upon death, these provide a lump sum payment if the holder finds out they're going to die. You might like this option as it allows you to see the moment the mortgage is paid off or to use the money to make memories with loved ones and tick off items you've had on your bucket list.

What Does a Life Insurance Policy Cover?

There's nothing specific that life insurance is used for. It's paid out as a cash lump sum, free from any conditions, so it can be used for whatever your named beneficiaries want to use the money for.

Life Insurance Can Cover Mortgage Costs

Many people use life insurance to cover the remaining value of their mortgage. If one partner dies, the surviving partner can afford to clear all the mortgage debt. For a family, this offers long-term security and no chance of sudden homelessness.

Many mortgage providers will ask that you take out life insurance before they'll lend their money. As a result, they know that they're protected and will get their investment back.

Life Insurance Can Cover Family Costs

If you have young children, your life insurance can provide all kinds of protection. It can make sure that your loved ones can keep paying the bills, so their lives aren't uprooted any more. This money can fund your child's education or ensure that your spouse can afford to stay at home and be around for your grieving children. Losing a loved one is incredibly painful but made so much harder for a young family that also depended on their income.

How Long Does a Life Insurance Policy Last?

A life insurance policy can last for any number of years. Most people choose policies that last somewhere between 10 and 25 years in total, though some people have policies that run for just five years and others for 40 or more.

When you're applying for life insurance, be realistic about what you need. What is the money intended for? If you just want to provide some security for your children, you might not need the same level as cover once they've grown and moved out in 20 years. If you want to cover a large mortgage, you might want a 40-year policy.

The older you are, the less likely it is that you'll be able to get a long-term policy. You might be excluded from 40-year policies if you're over 40 yourselves, or you could find that premiums are unattainably high as there's a higher chance you won't outlive your policy. Someone in their 20s, reasonably expected to live at least until their 60s, might find that a 40-year policy is very affordable.

Once you reach your later years, you might opt for a whole of life policy. This provides cover for the rest of your life, with a guaranteed payout at some point. Many Over 75s life insurance policies will offer whole of life cover but expect high premiums because insurers know that they're definitely going to payout.

How Much Does a Life Insurance Policy Cost, and What Makes Them More Expensive?

Many factors influence the cost of a life insurance policy. The more risk the insurer is taking, the higher your premiums will be. Someone young and healthy that's very likely to outlive their life insurance term might reasonably expect to pay as little as £5 per month for life insurance. An older person with a long-term health condition might £50-£100 monthly. Most people will pay between £15 and £30 per month for life insurance.

Does Age Affect the Price of a Life Insurance Policy?

Broadly speaking, younger customers are less of a risk. In the UK, life expectancy is around 80 years. If you’re in your 20s, you have a good chance of living for another 60 years. If you’re already in your 70s, insurers will determine that they’re more likely to need to payout. The older you are, the more you’re likely to pay for your life insurance cover. Of course, the length of your policy term will also have an impact on the price.

Does Gender Affect the Price of a Life Insurance Policy?

Men don’t typically live as long as women. In the UK, women on average live about four years longer than men. Women, for that reason, might be able to get their life insurance at a lower price.

Does Your Address Affect the Price of a Life Insurance Policy?

It’s a sad reality that living in a city will have a negative impact on your life expectancy. In London, you’re more likely to inhale pollution or be hit by a car than if you live in a quiet suburban town. Your postcode tells insurers a lot about the level of risk they’re taking on.

Does Your Health Affect the Price of a Life Insurance Policy?

Pre-existing health conditions, as well as your habits, can greatly affect insurance premiums. If you’ve very overweight or underweight, you’re likely to have a shorter life. If you’re a smoker or heavy drinker, you’re putting your health at risk. If you have an existing health condition, this could also reduce your life expectancy.

Does Your Family Medical History Affect the Price of a Life Insurance Policy?

Even if you’re healthy now, your insurance premiums might be affected by your family history. If a health condition runs in your family, there’s a chance that you might inherit it. Hereditary conditions can play a part in influencing life insurance prices, and if one comes to light after you’ve taken out your policy, then it could still be voided. You’re expected to check your history, and ignorance isn’t a valid defence.

Do Jobs and Hobbies Affect the Price of a Life Insurance Policy?

Some jobs are more dangerous than others. If you work as a firefighter, drive long distances, or race high-speed cars for a living, your insurers are likely to charge more money to cover the risk they’re taking on. Even if your role doesn’t seem death-defying, then things like your working pattern or high risk of stress can mean your health is more of a concern to insurers. The same can apply to any hobbies you fill your spare time with.

Does Your Driving Record Affect the Price of a Life Insurance Policy?

Insurers can access your driving records to see what you’re like on the road. Existing driving convictions are a clear indicator that you tend to take risks when you’re driving. If you’re prone to speeding or breaking the rules of the road, you’re more likely to die if you’re always very careful and attentive.

Does Policy Term Affect the Price of a Life Insurance Policy?

If you’re in your 30s and choose a 40-year policy, you’ll be 70+ by the time it ends. In your insurer’s view, there’s a very real chance that you won’t survive to see your 70th birthday. If you choose a 20-year policy, your insurer can feel far more confident that you’ll survive into your 50s—the shorter your policy term, the more chance you’ll outlive your policy. If you outlive your policy, your insurer keeps your money, and you receive nothing at all. Shorter policy terms, for obvious reasons, result in lower life insurance premiums.

Does Payout Value Affect the Price of a Life Insurance Policy?

The higher the payout, the more you’ll pay in monthly premiums. All else being equal, you’ll pay more for £500,000 of cover than you would for £100,000.

You can also reduce your insurance premiums by choosing a decreasing term policy. With these, the payout level slowly decreases over time. The longer you survive, the less your loved ones will be paid after your death.


Money Savings Advice Tip

Life insurance is growing in popularity. Here at Money Savings Advice we recommend getting a whole market quote so you can see the monthly costs involved from all providers enabling you to make an informed decision. Life Insurance becomes more and more important if you have a mortgage and family, making sure they are financially protected should the worst happen is essential.


Do I Get a Free Gift With a Life Insurance Policy?

Most life insurance policies don’t come with free gifts, but it’s always worth shopping around. Some providers will offer gift cards to encourage you, whilst others might choose to offer gadgets. These kinds of gifts are becoming more common as insurers fight to grab your attention in the age of online price comparison.

Many Over 50s policies come with slightly less impressive gifts. A free Parker pen is the most well-known offering for Over 50s life insurance.

What’s the Difference Between Life Insurance and Critical Illness Cover?

Life insurance pays out when you die. With this type of cover, there’s no way to access any money earlier.

Critical illness cover comes with the option to take your money if you’re seriously ill. Critical illness cover is usually provided as an optional policy extra, slightly increasing your monthly life insurance premiums. If you receive a terminal diagnosis, you will be able to take your money early so you can use it whilst you’re still alive.

Are There Any Restrictions to Taking Out Life Insurance?

Anyone over the age of 18 can take out a life insurance policy. There are no specific restrictions, though the very old or very unhealthy will usually find themselves excluded. You might find that policies are too expensive if you’re too much of a risk or that insurers will refuse to even give you a quote because they don’t want to cover you.

Are There Any Age Restrictions to Taking Out Life Insurance?

There’s no official maximum age for taking out a life insurance policy, though each insurer will have its own limits in place. You might struggle to find a life insurance policy if you’re over 80, but some insurers will consider applicants as old as 90.

Are There Any Illness Restrictions to Taking Out Life Insurance?

A pre-existing condition might make you an unappealing person to insure, as many illnesses reduce life expectancy. Insurers might quote a very high price or could exclude you completely, though there’s no specific list of pre-existing conditions that every insurer will exclude.

Is There a Specific Life Insurance Policy for People That Have Pre-Existing Conditions?

If you have a pre-existing condition, you might struggle to find a suitable life insurance policy. Shop around and don’t give up, as there’s always a chance you’ll find someone that’s willing to insure you.

Is There a Specific Life Insurance Policy for People That Have Diabetes?

If you have Type 1 diabetes, it’s probably likely that you’re able to control most of your symptoms. For insurers, Type 1 diabetes isn’t usually too much of a problem. Type 2 diabetes is more of a risk factor because it’s often much harder to control. If you have Type 2 diabetes, you can expect to be quoted more for your life insurance.

Is There a Specific Life Insurance Policy for People That Have Cancer?

Understandably, a cancer diagnosis will impact your life insurance quotes. You’re unlikely to be offered a life insurance policy, or at least one with a reasonable premium until you’ve been in remission for a couple of years. If you’ve had cancer, waiting a few extra years could reduce your life insurance premiums. The longer you live cancer-free, the less likely it is that your cancer will return.

Is There a Specific Life Insurance Policy for People That Have Terminal Illness?

If you already have a terminal diagnosis, most insurers won’t offer any cover. There are, however, limited ways to take out a new life insurance policy. You might be able to get ‘guaranteed issue’ life insurance. This works a lot like whole life insurance, so you’ll start paying premiums straight away, and you’ll be covered for your death at any time. With a terminal illness, your premiums will be very high, but there are no health exams.

When Does Life Insurance Not Payout?

There are some occasions when a life insurance policy becomes null and void. Your life insurance policy may not pay out in any of these situations:

Does Life Insurance Payout if I Miss a Premium Payment?

If you missed some payments, your life insurance policy might have been canceled. If this happens, you will not be given a refund for the money paid so far.

What Are Life Insurance Waiting Periods?

Some policies include a waiting period. This is the time between your policy start date and a separate date that you can claim from.

A waiting period will make your policy invalid if you pass away too close to the start. Death can happen at any time, but if you pass away during a waiting period, your loved ones might not receive a payout. Often if you die within the waiting period, any premiums you’ve paid will be refunded to your beneficiaries.

What Is Life Insurance Non-Disclosure?

If you haven’t told the truth during your application or have hidden pre-existing conditions, your policy may be completely void if these lies or omissions are discovered.

What Is Life Insurance-Agreed Exclusions?

If you want life insurance but have a pre-existing condition, you might agree that your insurer can cover you for any and all unrelated deaths. Your pre-existing condition can be excluded from the policy, so you can keep costs down or get insurance when you otherwise wouldn’t. If your pre-existing condition is the cause of your death, your policy will not payout.

What Is Life Insurance Immediate Suicide?

Most policies have waiting periods of one or two years before you’re covered for death by suicide. This stops people that were considering this option from taking out a policy so others can financially benefit. Suicide deaths are usually covered after the waiting period. The waiting period for suicide may be different from any general waiting period that applies to your life insurance policy.

What Happens to My Life Insurance Policy if I Change Address?

Keep your insurer up to date. If something changes and you don’t tell your insurer, your policy might stop being valid. Some changes may result in increased life insurance premiums.

Can I Get Life Insurance for the Whole Family?

It is possible to get a family life insurance plan. You might get cover for you and your spouse, or just for one adult, with children added to the policy. Usually, the children are insured for a small payout and the adults for a much larger figure. Children can be added to a single or joint life insurance policy.

How Can Money Savings Advice Help You With Life Insurance?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Life Insurance brokers. They have already helped thousands of people get the best Life Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

 

Money Savings Advice Author Ian Lewis

Ian Lewis

Ian Lewis is one of our specialist financial writers. Ian has over 15 years of financial writing experience, having worked for some of the largest financial publications in the UK covering topics from mortgages, equity release, loans and financial claims, to name a few.

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