Alyssa Lane
Life insurance is a financial safety net that can protect your loved ones if you die. It's designed to pay out a lump sum to your beneficiaries, ensuring they have financial support during what could be a difficult time. The best life insurance for you will depend on your intentions for the possible payout and your circumstances. The cost of life insurance in the UK is, on average, around £34-38 per month, but this will depend on factors such as your age, health, and lifestyle, as well as the policy type, term and amount of cover you want. There are several types of life insurance, including term life insurance and whole-of-life insurance, and many providers to choose from.
| Characteristics | Values |
|---|---|
| Number of types of life insurance | 4 |
| Types of life insurance | Term life insurance, Whole-of-life insurance, Family income benefit insurance, Level term insurance |
| Factors determining the type of life insurance | Circumstances, budget, age, coverage required |
| Average cost of life insurance in the UK | £38 per month |
| Average amount of cover | £152,000 |
| Basis of payout | Information provided about lifestyle and health |
| Basis of premium | Age, health, lifestyle, cover required, type of policy |
| Best life insurance companies | Vitality, Aviva, Royal London, Legal & General, Smart Insurance, Liverpool Victoria (LV), HSBC |
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What You'll Learn
Term life insurance
There are two types of term life insurance: level term and decreasing term. Level term insurance maintains a consistent death benefit throughout the policy term, making it suitable for covering stable financial obligations or providing income replacement. Premiums remain fixed for the entire term, providing predictable costs for the insured. Decreasing term life insurance, on the other hand, offers a death benefit that decreases over time, often in parallel with a reducing financial liability such as an outstanding loan or decreasing mortgage balance. This type of insurance is useful if you need to cover a reducing debt such as a repayment mortgage and is usually less expensive than a level term assurance.
When considering term life insurance, it is important to shop around and compare different providers and policies. The cost of term life insurance depends on various factors, including the coverage level, policy type, age, health status, and smoking habits. It is also important to keep in mind that life insurance needs may change over time, and the coverage may need to be adjusted when major life events happen, such as getting married, having children, or buying a home.
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Whole-of-life insurance
Whole-of-life pure protection lasts for the entirety of your life, but insurance providers will look at your medical history when considering your application. This means that it is more suitable for people with a good health record, and others may find themselves rejected for cover.
With whole-of-life investment-linked policies, insurance providers invest the money from your premiums with the aim of making enough of a return to cover the eventual payout. With a unit-linked policy, you choose the investment funds you want to buy with your premiums.
It is important to note that some whole-of-life policies levy significant charges if you want to end your cover early. Additionally, reviewable premiums may start out lower, but insurance providers can review them from time to time and increase the amount you have to pay.
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Critical illness cover
The maximum age limit for taking out critical illness cover is 67, and the minimum term length is two years. Policies must end before the policyholder turns 75, and the maximum length of a policy is 50 years. The cost of critical illness cover varies between insurers, so it is worth comparing quotes from different providers. Some insurers offer free health and wellbeing services during the policy term, which could be beneficial.
Some of the best critical illness cover providers in the UK include Vitality, Royal London, and Legal & General. Vitality won the 'Best Critical Illness Cover Provider' award at the Moneyfacts Awards 2021. Their policy does not include children's critical illness cover as standard, but it can be added for an additional cost. Royal London's critical illness cover can be taken out as a standalone policy or combined with a life insurance policy. Legal & General's critical illness cover includes a range of specified critical illnesses, including various cancers, heart attacks, and strokes.
When considering critical illness cover, it is important to review the list of illnesses covered by the policy, as some conditions may be excluded depending on your medical history. It is also worth noting that critical illness cover cannot be taken out as a standalone policy and must be combined with a life insurance or decreasing life insurance policy.
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Level and decreasing term cover
Life insurance is an important financial product that can give you peace of mind that your loved ones will not be financially crippled if tragedy strikes. There are many reasons you might want to consider a policy, including taking out a mortgage, moving in with a partner, having a child, or to avoid inheritance tax by putting your life insurance policy in trust. Ultimately, the best type of life insurance for you depends on your individual circumstances and reasons for taking out a policy.
Level term cover and decreasing term cover are two types of term life insurance policies. Term life insurance is the most popular type of life insurance in the UK. It is also known as standard life insurance and is cheaper and more flexible than whole-of-life insurance as you only pay for cover over a set period of time.
Level term cover is one of the most common types of life insurance. It gives you a set amount of cover for the duration of your policy. You pay the same premium and get the same amount of cover for the whole of your policy. The payout amount doesn't go up or down, it just stays 'level'. Level term cover can help pay everyday living costs, childcare, or an interest-only mortgage. It is typically more expensive than decreasing term cover, but the financial benefit will stay the same during the policy lifetime.
Decreasing term cover is where the amount of cover reduces throughout the term of the policy. So, if you were to die during a fixed period (the term), the amount paid to your family would depend on how long has passed since the policy was taken out. If you were to die after this period, there would be no payout. Decreasing cover is often purchased to help clear a specific debt, such as a capital repayment mortgage. As this type of debt decreases over time, so will the amount of insurance. It is typically cheaper than level term cover, but the benefit given will drop over time.
Some insurance providers in the UK, such as American International Group (AIG) and HSBC, sell both level and decreasing term cover. Liverpool Victoria, often branded as LV=, also offers both level and decreasing cover life insurance options.
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Cost of life insurance
The cost of life insurance in the UK depends on several factors, including age, health, lifestyle, and the type of policy chosen. The younger and healthier you are, the lower your monthly payments are likely to be. For example, if you are in good shape, you are considered less of a risk and may benefit from cheaper premiums. Similarly, lifestyle choices such as drinking and smoking will increase the cost of your premiums.
The type of policy you choose will also affect the price. Whole-of-life insurance, which pays out whenever you die, is the most expensive option. Level term life insurance, which pays out a fixed amount for a fixed term, is cheaper. Decreasing term life insurance is the cheapest option as the value of the payout depends on how long is left on the term, meaning its value falls over time. A joint policy, which covers two people but only pays out once, is also a cheaper option than insuring two people individually.
The average cost of life insurance in the UK is £14.93 per month, although quotes can be as low as £5 per month. However, prices can be much higher depending on the factors mentioned above. For example, a 30-year-old non-smoker can expect to pay £95 for a level term policy of £300,000. Life insurance with critical illness cover can cost around £170 a month.
It is important to consider your circumstances and what you want your life insurance policy to cover before taking one out. You may also want to consult a financial advisor to ensure you get the best deal for your needs.
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Frequently asked questions
The average cost of life insurance in the UK is £38 per month, and the average cover amount is £152,000.
The four main types of life insurance are term life insurance, whole life insurance, decreasing life insurance and increasing life insurance. Term life insurance is the most popular type of life insurance in the UK.
Some of the best life insurance companies in the UK are Aviva, LV= (Liverpool Victoria), Vitality, and Scottish Widows.
When choosing a life insurance policy, consider your coverage needs, budget, and age. You should also compare prices from multiple insurers and speak to a financial advisor to find the best option for your circumstances.
In most cases, a medical exam is not required for life insurance in the UK. However, some insurers may request one, and they will typically cover the associated costs.
