Life insurance is designed to provide financial support if the person insured dies while their policy is in force. Depending on the type of cover, it can help a family manage mortgage repayments, household bills and other commitments. The right amount and duration depend on your circumstances.
How does a life insurance policy work?
You apply for a particular amount of cover, choose an appropriate term where applicable, and provide information about your health, lifestyle and other factors requested during underwriting. The insurer assesses the application and confirms whether it can offer cover and on what terms. You pay the premiums required to keep the policy in force.
If the insured person dies during the period of cover, a valid claim pays the benefit in accordance with the policy and the legal arrangements surrounding it. Some policies include terminal illness benefit, subject to specific definitions and restrictions. Life insurance does not normally pay a death benefit when a term policy expires without a claim.
What are the main types of life insurance?
Level term life insurance
With level term cover, the insured amount stays the same over an agreed period. It is often used for family protection, or for an interest-only mortgage where the outstanding balance does not decrease through normal capital repayments.
Decreasing term life insurance
With decreasing term cover, the benefit reduces during the policy term. This can suit some repayment mortgages, although the policy’s reduction basis should be checked against the mortgage and any changes in interest rate or repayment schedule.
Whole-of-life cover
Whole-of-life policies are intended to provide cover for life while the policy remains in force. Premium structures, guarantees and potential cash or surrender values vary. Some whole-of-life policies have a surrender value, whereas typical pure protection term policies do not.
How much life insurance might I need?
Consider what your dependants would need after your death: outstanding borrowing, household expenses, childcare, other income, existing insurance and how long people would rely on the financial support. A mortgage balance on its own may not reflect your family’s full needs. Read our guide to choosing a cover amount.
Does life insurance pay out automatically?
No. Someone usually needs to notify the insurer and make a claim. The insurer will check the claim against the policy terms and may require a death certificate and other documents. The time taken varies with the case, the available evidence and any questions about the claim. There is no universal guarantee that all policies pay within a set number of days.
Who receives the money?
That depends on the ownership and structure of the policy. A payout may be made to the policy owner, trustees under a valid trust, or an estate. It is important not to assume that naming somebody informally always determines the legal recipient. An adviser or solicitor can explain the relevant options.
Does life insurance cover every cause of death?
Cover, exclusions, claim requirements and any initial restrictions vary by policy. Answer application questions fully and accurately, and read the policy documentation carefully. Critical illness and income protection are different products, with different triggers for payment.
What should I do next?
Compare policies by the actual benefit, cost, duration, definitions and suitability — not simply the cheapest quoted premium. Contact Discount Life Cover to discuss your needs with an experienced adviser or explore our life cover enquiry journey.
Adviser insight — Jody Pearmain, Director of My Key Finance Ltd: In my experience, the first question shouldn’t be the monthly price. Work out who relies on you financially and how long they would need help; then assess the policy features and underwriting that make the protection meaningful.
Written by Jody Pearmain, Director of My Key Finance Ltd. This guide is general information, not a personal recommendation. Read more at About Discount Life Cover.