The Ultimate Guide to Life Insurance 2023

The Ultimate Guide to Life Insurance 2023

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The Ultimate Guide to Life Insurance

The topic of life insurance can be somewhat confusing and downright scary to think about.There comes a point in everyone’s life when we have to remember that we aren’t going to be around forever. We’re hoping someone will discover the fountain of youth in the next few years, but for now, you probably have lots of questions about how to support your loved ones once you’re gone.If you’re wondering “what is life insurance and how does it work?” you’re in the right place.In this ultimate guide to life insurance, we’ll help you to understand the different types of life insurance, the details and costs involved, and how to decide which life insurance company is right for you.

What is Life Insurance?what is life insurance

Before we delve any further into the topic of life insurance, let’s answer the question: What is life insurance?

What is life insurance? (simple definition)

Life insurance refers to a binding contract between an insurer and a policyholder that guarantees the insurance company will pay a certain amount of money to named beneficiaries when that person dies. This is done in exchange for premiums paid by the policyholder during their lifetime. Life insurance is designed to help your family to cope better financially and emotionally once you pass away.

What does life insurance pay for?

Your named beneficiaries can use the money from your life insurance policy for reasons of their choosing. For example, they might use it to pay bills, make home mortgage repayments, or put a child through university. You can consider life insurance as a safety net for your loved ones.It’s important to note what life insurance does and doesn’t cover. This will depend on the insurance provider you choose, however, there are some general rules.

What a life insurance policy doesn’t cover

For example, it won’t apply if you suffer from a pre-existing medical condition or disability that renders you unable to work or provide for your family. In that case, you should consider critical illness cover.Life insurance companies usually have some circumstances they won’t cover, including drug and alcohol-related deaths or death by causes not outlined in the details of the insurance agreement.

Types of Life InsuranceThe Cheapest Life Insurance

There are many different types of life insurance policies available. First of all, let’s look at the two main ones:


You might have guessed by the name, whole-of-life insurance policies guarantee your dependants a payout irrespective of when you pass away.Other kinds of life cover will only provide payments during a specified time period (policy term), whereas whole-of-life accumulates a cash value as time goes on.A whole of life policy is typically more expensive than a term type of policy. Why? Because the insurance company knows they’ll have to pay out money at some point.With this type of policy, policyholders need to ensure they can afford the premiums during their lifetime and once they retire. If someone fails to manage the premium payments, the life insurance cover will be cancelled.Whole-of-life policies fall broadly into two different categories: balanced cover and maximum cover. Let’s check out the differences.
Balanced cover
Balanced or standard life cover means that your premiums stay the same throughout the duration of your policy.This means that even as you get older (it happens to us all!), and your health might deteriorate, you’ll continue paying the same amount for your insurance. You’ll also agree on a fixed cash lump sum which the insurer will pay to your loved ones when you pass away.
Maximum cover
Maximum cover is linked with an investment policy fund. What does this mean? The insurance provider makes investments for the money you pay each month so that, hopefully, the returns on investments will be enough to cover the cost of the eventual lump-sum payout.Your premiums will then be reviewed on a periodic basis. If the investments are not performing to the level that the insurer wanted, your cover may be changed. The insurer may increase your monthly premiums if your investments aren’t performing well, or reduce the size of the payout your loved ones will receive after you die.While these policies are likely to be cheaper initially, premium increases are likely and can, in some cases, be substantial.

Term life insurance policies

A term policy runs for a fixed period of time. This is known as the “term” of the policy which could be, for instance, 10, 20, or 25 years. After this period of time, the policy will expire.Term life insurance policies guarantee your dependants a payout within the term outlined in the policy.Often, people take out cheap life insurance to ensure their dependents can cover things like housing costs if they pass away. However, a home mortgage typically takes about 25 years to pay off, so extending the cover beyond the life insurance term isn’t always necessary.By limiting the life insurance policy term to a specified time period, the policyholder pays lower premiums. For this reason, term life insurance policies are more affordable than a whole-of-life cover.
Differences Between Level Term & Decreasing Term Life Insurance
With a level life insurance term policy your family or dependents are guaranteed a pre-agreed cash lump sum if you die within the term specified in the life insurance contract.If you take out this type of life insurance, you’ll pay the monthly life insurance cost as determined by lifestyle parameters like age, health, smoking status, and other personal circumstances.On the other hand, a decreasing term life insurance policy means that the cash sum decreases throughout the policy term to align with reductions in home mortgage repayments.Decreasing term policies are generally more affordable than level ones, as there is less risk to the insurers. This type of policy is best suited to those paying off a home mortgage who want to guarantee repayments are still made in the event of their passing. Work out how much you might need using our decreasing term life insurance calculator.

Other types of life insurance

Increasing term insurance
An alternative to level or decreasing term life assurance policies, this kind of policy means the purchased cover will rise each year, potentially reflecting inflation. You can choose to link your payout to an inflation measure, which means your monthly payments will be higher if the life cover is scheduled to increase each year.
Joint life assurance
Couples can consider taking out a joint life insurance policy that provides a certain amount of cover in the event that one of you dies. Joint life policies are more affordable than taking out two separate policies, however, it’s important to note that joint policies only pay a lump sum on the first death.
Family income benefit policies
over 50s life insurance Family income benefit policies are designed to pay a regular monthly income if you die. This means your family are supported if you were their main provider before your death.Over 50s life insuranceOver-50s life insurance is an amount of cover that can be taken out if someone is between the ages of 50 and 80. With over 50s life insurance cover, you pay monthly premiums to insurers and, assuming you’ve made all your payments, your beneficiaries will receive a cash sum of money after your death. You can get a quote for over 50 life insurance here or use our over 50 life insurance calculator to work out how much cover you may need. 

How Does Life Insurance Work?

The major question you’re likely to want to answer before investing in life insurance is: How does life insurance work? We’re about to clear it up for does life insurance workA term life insurance policy is typically composed of a death benefit and a premium. Additionally, a whole-of-life insurance policy features these two components as well as a cash value component.Let’s break down each of these components to understand what they mean for the buyer.

1. Death Benefit 

The death benefit refers to the amount of money guaranteed to the identified beneficiaries by the insurance company. This amount of cover can be used to pay for a number of things, like mortgage repayments, and education costs, or to cover living expenses. This is determined by:
  • The desired death benefit outlined by the insured based on their beneficiaries estimated needs
  • Insurable interest and the insurance company’s underwriting requirements such as age, health, and lifestyle

2. Premium

Premiums refer to the amount of money the policyholder pays for their insurance policy. When a person takes out an insurance policy they must pay the required amount in order to receive the death benefit in the event of their death.Monthly payments are determined by the insurance company partly determined by how likely it is that they’ll have to make a cash sum payout based on the policyholder’s life expectancy. We’ll go into more detail about how the cost of a life insurance premium is determined later in this article.

3. Cash value

This is a component of a whole-of-life policy. It’s a portion of the policy that earns interest and can be withdrawn during the insured’s lifetime. The cash value accumulates on the basis of tax deferral and can be withdrawn or borrowed against in emergency situations.Certain policies will have withdrawal restrictions that depend on how the money will be used by the insured. To understand more about this, ask the insurance provider for some financial advice.

What about terminal illness cover?

What if you’re diagnosed with a terminal illness during the policy term? Terminal illness protection allows you and your loved ones to receive the cash sum money payout if you’re diagnosed with a terminal illness during the term.

What Happens After Death?

Now you know all about life insurance and how it works, you might be wondering what happens after I die. It’s not a nice thought, but if you need life insurance then it’s definitely important to know!When a person with life insurance dies, their beneficiaries are required to file a death claim in order to receive the death benefit payout. This normally means making a registration for probate. You can read more about probate here.The beneficiary must submit a death certificate to the insurance company, which will then investigate the claim. Next, the company pays out a lump sum or organizes regular payments depending on your policy.

How Much is Life Insurance?

There’s no set cost of life insurance. Instead, the amount you’ll pay for life insurance is determined by your personal circumstances and how much cover you require. There are plenty of factors that’ll affect your premium rates, including:
  • The amount of cover required
  • The policy chosen
  • The length of the term
  • Age
  • Health
  • Lifestyle (eg. whether you’re a smoker, or if you participate in high-risk activities)
Younger people who are less likely to die from medical conditions will likely pay cheaper premiums. On the other hand, the older you are the higher your payments will be as there is an increased risk of medical problems.The easiest way to estimate the costs of life insurance is to use one of our life insurance calculators.

How much life insurance do I need to support my loved ones?

When you apply for life insurance, you can decide how much you want to pay each month (premiums). This amount, combined with the term length and the type of life insurance you desire, will allow you to estimate your payout.On the other hand, you can also decide the size of your payout. If you choose this option, then the insurance company will provide you with an average cost spread across monthly premiums.To determine how much life insurance you need, you’ll have to consider your personal circumstances and needs. You should think about your mortgage, living expenses, who your beneficiaries are, the payout amount, and your existing savings and assets.Life insurance costs also depend on the risks of the insured to the insurance company. The higher risk you pose, the higher your premiums will be. We speak more about how much life cover you may need here.

How do insurance companies assess my risk?

There are some important factors that insurance companies will need to know regarding your health before they can provide you with a premium quote. These factors include but aren’t limited to:
  • Age
  • Height
  • Weight
  • Smoking status
  • Family medical history
  • Lifestyle concerns (eg. alcohol consumption or participation in hazardous activities)
  • Known diseases or disorders
  • Mental health issues

Should I Pay Monthly or Annually?

Most of the time, monthly payments are the best option as they’re easier to fact into your budget. Monthly cash sum payments make less of a dent in your overall earnings, which can be easier to save for. If you opt to pay annually, you’ll be required to make more substantial payments before the end of the year.

What Debts Should I Cover?

As we go through life it’s completely normal to gather a certain amount of debt. The experience of buying a house or studying at university can result in plenty of debt.Often, when a person dies there debt doesn’t simply disappear. Generally, it still needs to be paid. If your loved ones have no idea about your debt, or you know they don’t have a way to cover it, then life insurance is a good idea.When deciding how much life insurance you need, it’s important to take your debts into consideration. Consider your mortgage, credit cards, university or other study loans. Making sure your life insurance covers this amount of money will be a huge support to your beneficiaries when you pass away.

What’s the average life insurance cost?

When it comes to life insurance, there’s probably one thing on your mind: money. There isn’t an average cost of life insurance, however, the costs of the main types of life insurance can be determined by some considerations.You’ll need to think about your needs and the needs of people depending on you. The risk factors mentioned above and any pre-existing medical conditions, along with your profession and other individual circumstances will affect how much you can expect to pay.If you’re not sure how to cover the cost of your life insurance, it might be worth seeking financial advice.Note: If you work in a dangerous environment then your monthly costs will be higher than if you work in a school or an office.

Do I Need Life Insurance?

Whether or not you need life insurance is completely dependent on your individual circumstances. Insurance is designed to give you a way to save your loved ones with a financial safety net in the event of your passing. If you’re not sure whether you need life insurance, you can ask an insurance advisor for advice.

Is life insurance a good idea?

If you haven’t yet made provisions for those you care about one, you might want to consider life insurance. It can help your loved ones with financial support that can pay for funeral costs, cover your debts, or manage living expenses.

Who might need life insurance?

If you have people depending on you then life insurance can be a worthy investment that’ll provide your loved ones with peace of mind once you’re gone.Below are some examples of people who may need life insurance:
  • Parents with minor children: A parent’s death can create financial hardship for minor children. With life insurance, you can make sure that your children have access to financial resources to support themselves until they come of age.
  • Parents with special-needs adult children: Life insurance can be used to ensure children with special needs that will never be self-sufficient get the care they require after a parent’s death.
  • If you have a partner who depends solely on your income: Life insurance can provide for them in the event of your death.
  • If your family lives in a house with a mortgage you pay: A life insurance to cover your mortgage debt.
  • If your family can’t afford your funeral expenses: The life insurance policy could provide your family with a lump sum to assist with funeral expenses in the event of your death.

Is Life Insurance Only for Parents?

No, life insurance isn’t only for parents. If two partners take out life insurance together, they can ensure the other is covered with the basics in the event of one’s death. If you’re wondering whether life insurance is for you, you should ask for some advice.

Which Life Insurance Company is the Best?

There are countless life insurance companies to choose from. With so many options, how do you know which one is right for you?There’s no way to determine which is exactly the best life insurance provider out there. However, there is a range of insurance providers that offer a range of payment plans and cover all of the basics that’ll be worth your money. The top-rated life insurance companies in the UK include:
  • Aviva
  • Guardian
  • Royal London
  • Vitality
  • Zurich
It always pays to do some quick research in your web browser to check out your options as there are plenty more where these came from!You can also ask companies for information and advice on whether they offer policies to suit your needs. They’ll also be more than happy to answer your questions!

How to Get the Best Deal on Life Insurance

Factors to consider when choosing a life insurance policy include:
  • Clarity of policy wording
  • What is included and excluded by the policy
  • Whether a premium is guaranteed
  • Additional areas of cover
  • Percentage of claims paid
  • Whether the provider is trusted
  • The amount of cover provided

Other types of insurance

Life insurance might not be right for all situations and circumstances.If, after reading this article, you’ve answered the question “what is life insurance?”, and you’ve realised it doesn’t suit your situation; there are some other types of insurance to better suit your needs.
  • Critical illness cover: This provides a tax-free money lump sum if the insured person is diagnosed with a serious illness that’s outlined in the policy.
  • Health insurance: Healthcare cover typically pays for medical, surgical, and prescription expenses. It can reimburse for money spent on illnesses or injuries.
  • Income protection insurance: Provides regular payments if a person is unable to work due because of illness or injury.
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