Everything you need to know about UK life insurance — types, costs by age, how much you need, trusts, tax and how to choose the right policy.
Fixed payout for a fixed term. Best for families with young children or fixed-term financial commitments. Payout remains constant throughout the term.
Payout reduces over time, mirroring a repayment mortgage balance. Cheaper premiums than level term but only suitable to cover a specific reducing debt.
Covers your entire life with no fixed end date. Guaranteed payout whenever you die. Much higher premiums — often used for IHT planning.
Pays a lump sum on diagnosis of a specified serious illness (cancer, heart attack, stroke etc.) while you are still alive. Often added to term policies.
Replaces a portion of your income (usually 50–70%) if you are unable to work due to illness or injury. Pays monthly until you return to work or retire.
Rather than a lump sum, pays a regular monthly income to your family for the remaining policy term. Easier to budget for than a large one-off payment.
Get a rough idea of what you might pay. Actual quotes will vary — use a comparison site for accurate figures.
This is an indicative estimate only. Always obtain a personalised quote from a regulated insurer or broker. Premiums depend on your full health history, BMI and lifestyle.
The following indicative costs are for a non-smoker in good health applying for level term cover online. Smokers typically pay 2–3 times more.
| Profile | Cover & Term | Approx Monthly Cost |
|---|---|---|
| 30-year-old non-smoker | £200,000 / 20-year level term | ~£10–15/month |
| 35-year-old non-smoker | £200,000 / 20-year level term | ~£15–22/month |
| 40-year-old non-smoker | £200,000 / 15-year level term | ~£20–30/month |
| 45-year-old non-smoker | £200,000 / 15-year level term | ~£30–50/month |
| 50-year-old non-smoker | £200,000 / 10-year level term | ~£50–80/month |
| 30-year-old smoker | £200,000 / 20-year level term | ~£25–40/month |
| 40-year-old smoker | £200,000 / 15-year level term | ~£55–80/month |
There is no single correct answer, but these common approaches help frame the calculation:
A commonly cited rule of thumb is 10 times your annual income. On a salary of £40,000, this gives £400,000 of cover. This is a starting point, not a precise calculation, and does not account for debts or specific family circumstances.
Cover your outstanding mortgage balance, then add 5–10 years of income to give your family time to adjust financially. For a £250,000 mortgage and £35,000 income, this gives £250,000 + £175,000–£350,000 = £425,000–£600,000.
List everything your family would need funding for if you died:
Deduct: any death in service benefit from your employer (typically 4x salary), savings and investments already held.
Many UK employers provide a death in service benefit, usually 2–4 times annual salary, paid as a lump sum to your nominated beneficiaries. Check your employee benefits pack. If you have this, you may need less additional life insurance. However, it ceases when you leave your employer, so additional individual cover provides a safety net.
A life insurance payout is not subject to Income Tax or Capital Gains Tax. Your beneficiaries receive the full sum assured tax-free in that sense.
However, if the policy payout is paid into your estate (i.e., it goes to your estate rather than directly to named beneficiaries), it forms part of your estate for Inheritance Tax (IHT) purposes. If your estate exceeds the nil-rate band (currently £325,000, or up to £500,000 with the Residence Nil-Rate Band), the excess is taxed at 40%.
Placing your life insurance policy in a trust means the payout goes directly to your chosen beneficiaries, bypassing your estate entirely. Benefits:
Most major UK insurers offer a free trust form. Setting up a trust costs nothing with most providers. Consult a financial adviser or solicitor to ensure the right trust type is used.
Joint life insurance covers two people (usually partners) on one policy. It is cheaper than two individual policies but only pays out once — on the first death. The surviving partner is then left with no life insurance cover.
Individual policies cost slightly more in total but each pays out independently, providing better ongoing protection for both partners, especially if one dies young.
Pays a one-off lump sum on diagnosis of a specified serious condition (typically cancer, heart attack, stroke, multiple sclerosis). Usually covers 40–50 conditions. You use the money however you wish — pay off mortgage, fund treatment, adapt your home.
Pays a regular monthly income (typically 50–70% of your pre-illness earnings) if you are unable to work due to any illness or injury. Continues until you recover, reach retirement age, or the policy expires.
If you can only afford one, income protection is generally considered more valuable because it covers any illness or injury (not just specified conditions), and provides ongoing financial support rather than a one-off sum. It is statistically much more likely you will be off work for 2+ months than that you will die during your working life.
However, both products serve different purposes, and many financial advisers recommend having both alongside a basic life insurance policy.
Most mortgage advisers and lenders strongly recommend taking out life insurance alongside your mortgage. While lenders cannot legally require you to buy life insurance as a condition of your mortgage, it is considered essential financial planning for homeowners with dependants.
For a repayment mortgage, decreasing term insurance is the most cost-effective choice as the payout reduces in line with your remaining mortgage balance. For an interest-only mortgage, level term insurance is more appropriate since the balance does not decrease.