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Guide to Life Insurance
 
 

A guide to life insurance

By Nevena Mulyachka and Mark Todd
Nevena Mulyachka is moneyhelpline’s Marketing Manager, specialising in money products such as insurance, credit cards, loans and savings. Mark Todd is one of the founders of energyhelpline and moneyhelpline. He is regularly on BBC1 and Radio 5 Live commenting on switching and saving.

Last updated on 12/01/2016

Why should I get Life Insurance?

Life insurance is cover that pays out a lump sum of money if you pass away. Nobody likes to think about dying, but there are various reasons why life insurance might be necessary for you. The two main reasons why you might need it are:

  • To cover a large loan or a mortgage
  • To provide financial security for your family - maintain their lifestyle and/or pay for school/university fees, especially if you are the main or one of the main providers of income for the family.


Life insurance

What types of life insurance are there?

There are two types of life insurance depending on whether the sum of money that will be paid out to your loved ones stays the same over time or decreases – level term or decreasing term life insurance.

When buying the cover, you need to consider what your protection needs are – just to pay off a mortgage or a large loan, or to protect you family and leave them money to live off if you die.

 

Types of life insurance

Decreasing Term Life Insurance

Decreasing Term Life Insurance covers you for a specific period of time but the amount of money paid out to your family decreases over the course of the term. Usually these types of policies are suitable for covering the remaining amount of a mortgage or a loan in the event of your death. If you survive the term of the life insurance policy, nothing will be paid out to your family when you pass away.

Level Term Life Insurance

This cover is the most common and straight forward life assurance package you can get. Level Term Life Insurance also covers you for a specific chosen period of time and a lump sum of money is paid out to your family if you die within this period, and the amount of money stays the same over the period of the cover. However, if you die outside of this period, nothing will be payable to your family.

Whole-of-life or Over 50s policies

Whole-of-life insurance will pay out a lump sum of money whenever you die. It is always more expensive then fixed term covers, as a claim is inevitable. If you are considering it, you need to make sure you can meet the cost because you might be paying the monthly premiums until an old age, although most covers are designed so that you stop paying at a certain age, such as 85 or 90.

Whole-of- life insurance is mainly used for inheritance tax planning. For some, this level of life insurance can be used to help cover inheritance tax, funeral costs and can secure your partner and family’s financial future. Inheritance tax is currently set at 40% of the value of your estate, with the first £325,000 incurring no inheritance tax. It could prove more profitable for your family to have a life insurance policy that can be used to pay any inheritance tax especially if your policy is written in trust.

What is critical illness cover?

When buying a Level Term Life cover, you will usually be offered an additional option to insure you against critical illness. It will pay out a lump sum of money if you develop an illness, such as cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke, and it will pay out even if you don’t die. It may enable you to pay for home improvements (wheelchair access etc.) or private healthcare (home nursing or specialist physiotherapy). This kind of policy is usually used to protect you if you are unable to work for extended period of time.

 

Life insurance

Who provides life insurance?

We compare many UK life insurance providers, giving you the opportunity to pick the best cover for yourself and tailor the policy as per your own needs. Here are some more details about the life insurance providers we compare.

Ageas

  • Formally known as Fortis Life
  • Award-winning insurance provider with over 7.6 million UK customers
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)

Aviva

  • Previously known as Norwich Union
  • The world’s sixth biggest insurance group, which has more than 53 million customers in 28 countries
  • Life insurance with:
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
Bright Grey
  • Part of Royal London Group, which has more than 140 years’ experience and is the largest mutual life and pensions provider in the UK
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
Engage
  • Over 50s life cover with
    • guaranteed fix cash sum and no medical or health questions
    • terminal illness cover
    • £250 contribution towards funeral costs

Friends Life

  • 200 years experience and over 5 million customers worldwide
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
    • free accidental death benefit during application assessment
Legal & General
  • Established in 1836 with over 6.9 million life insurance customers in the UK and £320 billion of assets under management
  • Life insurance with:
  • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
  • terminal illness cover
  • critical illness cover for children (where life and critical illness is selected)
LV=
  • Established in 1843
  • Also known as London Victoria
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
PruProtect
  • Formally known as Fortis Life
  • Award-winning insurance provider with over 7.6 million UK customers
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
Scottish Provident
  • Division of the Royal London Group
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
Shepherds Friendly
  • Over 50s Life Insurance
    • guaranteed acceptance for everyone aged 50 to 75 with no medical checks
    • Option to receive £250 towards funeral costs
Zurich
  • Publicly listed company with head quarters in Switzerland and offices in Europe, US, Asia and Latin America
  • Life insurance with:
    • guaranteed insurability option (the ability to increase cover without the need for further medical underwriting, subject to certain criteria and Ts & Cs)
    • terminal illness cover
    • critical illness cover for children (where life and critical illness is selected)
    • free accidental death benefit during application assessment - subject to Ts & Cs
 

Life insurance

What affects the cost of life insurance?

The cost of life insurance is affected mainly by your personal circumstances – your age, your health and your occupation. Of course, other factors that affect the premiums are the type of life insurance policy, the length of the cover term, the number of people covered and the size of the life insurance benefit.

Tips and Tricks

Is life insurance right for you? Before you decide to get life cover, do a need analysis on yourself.

Do you have dependents? If not – maybe life insurance is not the right cover for you. If yes – will they struggle if you’re no longer around? Probably yes – so, consider life insurance.

Do you have a large loan or a mortgage? Will your family struggle with the repayments if you are not around? Then life insurance might be for you.

How long should the cover be? When taking out a life cover, don’t consider it has to be for a round number of years – it doesn’t have to be 10, 15 or 20, it could be 12, 17 or 19, depending on your needs. When deciding the length of your life cover, take into consideration who will need the money and what for. For example, if you want the cover to insure your children if you died, then you might want to consider when they will be out of school, out of university, or at an age when they will be able to provide for themselves.

Write your policy in a trust. If you do that, the money paid out after your death will be given to a specific person. If you don’t do that, your life insurance money will be added to your estate – hence, inheritance tax will be charged on it as well.

Single policies beat joint ones. Joint policies might be cheaper than taking out two single covers but there are a few catches that you need to be aware of. When you have a joint policy, if it pays out for one of you, then the other person will not be covered anymore. Also if the couple splits, then the policy has to be cancelled and new single policies have to be taken out, which are likely to be more expensive in different circumstances.

Cheaper is better. Don’t be put off by fears for quality when comparing cheap insurance policies. With level term assurance (the most common type of policy) since, with the payout being fixed, there’s no actual investment element there’s no need to fear if you’ll get your money’s worth. Even if an insurance provider should go into default, the government’s Financial Services Compensation Scheme will ensure you’re covered.

Shop around. Not all insurers assess risk the same way and life insurance prices change every day,  so there’s no best buy insurer. Using a broker that trawls through for the lowest prices is therefore advisable but beware their commercial relationships - stick with brokers and comparison sites that have a reputation for being independent and honest.


A word of Caution

How can we help?

With so many different life insurance providers in the UK, it can be very time-consuming to find a life insurance quote that suits your needs. We will compare over 10 UK insurers, including Aviva, Legal & General and Friends Life. You will be able to tailor your best life insurance quotes online and buy life cover instantly.

 

 

Compare Life insurance

 These guides are for informational purposes only and do not constitute advice. For best personal advice contact a financial adviser.

 
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