Life Insurance: The Ultimate Guide

Everything you need to know about life cover

author image - cai

By Cai Bradley

on Thursday 25 July 2019

Wooden blocks spelling Life Insurance on desk

As we head into adulthood and begin thinking about having children or buying our first home, it’s inevitable that we’ll consider life insurance at some point.

How could your partner cope with keeping up the mortgage payments without you? How would your children get through university without your financial backing if you were suddenly no longer here? Could you carry on paying the bills if you were too ill or injured to work?One solution to these concerns is life insurance.

In our ultimate guide and explanation of life insurance, you will find everything you need to know about life cover –from all the different policies available, to how extreme sports could affect the premiums you pay.

If you finish our guide and want some more life insurance advice,  take a look at our related articles or get in touch with one of our trained advisors here at Unite Life today, obligation free!

To skip to a specific section, simply tap the links below:

What is life insurance, exactly?

What types of cover can you get?

How much life insurance shall I get?

The cost of life insurance

Is it worth getting cover?

How to get cheaper insurance

Joint vs single life cover

Lying on your life insurance application

How to write your policy in trust

Index-linking your policy

If you don't die within your term life insurance

Life insurance and your health

Extreme sports and life insurance

Can I have more than one policy? 

Get your life insurance quote

What is life insurance?

Defined briefly, life insurance is an agreement between a policyholder (the person who owns the policy and pays the premiums) and an insurance company, where the insurer must pay out a lump-sum of money in the event of the policyholder’s death to an assigned beneficiary* in return for monthly payments (called premiums).

*The beneficiary is the person, or people, chosen specifically by the policyholder at the time of taking out the cover, who receive the pay-out once a claim is made.

The lump-sum pay-out can either be triggered in the event of the policyholder’s death, or a critical illness or injury, depending on the type of life insurance policy chosen.

Premiums are usually paid by the policyholder on a monthly basis, and the cost can vary significantly between each policy type and provider.

But when would you typically take out life insurance? It generally depends on your needs and your personal situation, as well as what type of cover you’d like.

However, most people tend to take out life insurance to:

  • Ensure their loved ones can deal with mortgage payments without them
  • Provide for their children (either through childhood, university, or buying a house)
  • Leave a legacy by providing relatives with an inheritance pay out
  • Cover the cost of their funeral

Your sole reason for taking out life cover will usually determine which type of policy you opt for – but what are the types of life insurance available to choose from in the UK?

Types of life insurance policies in the UK

There are many different types of life insurance policies available in the UK, and it can be a bit overwhelming at first. With that being the case, we’ll go through each type of policy one-by-one, to give you a brief idea of its purpose, advantages and any possible disadvantages.

What is whole of life insurance?

As a ‘whole of life’ policyholder, your beneficiaries are guaranteed to receive a pay-out regardless of when you pass away. It’s a type of insurance that covers you for the rest of your life, as the name suggests, which isn’t the case with other types of policies (such as term life insurance). 

Because whole of life insurance policies are guaranteed to pay out at some point – as long as you keep up-to-speed with paying the premiums and you are truthful in your application – they do tend to cost slightly more than others.

All in all it’s quite simple – you pay premiums every month and your beneficiaries receive a lump-sum pay-out when you pass away.

What is term life insurance?

Term life insurance, also known as term assurance, is a policy which only covers the policyholder for a fixed period of time. Unlike whole of life cover, it has a start and an end date, but can be significantly cheaper and offers many benefits for certain circumstances.

Someone might take out term life insurance as a way of ensuring that their dependants (whether that be their children or spouse) are able to cover certain costs when they are no longer around.

For example, they could take out a policy that covers the duration of their mortgage, or until their children have left full-time education. This will provide the policyholder with peace of mind knowing that their dependants will be financially secure during certain periods should they unexpectedly pass away.

Remember, because this policy only pays out if the policyholder dies during the agreed term, it often results in cheaper premiums.

Sometimes, the amount paid out can change depending on when (during the term) the policyholder passes away. If you’d rather know that the amount paid out would be exactly what you intended regardless of when you pass away, then opt for a specific ‘level-term insurance’ policy.

What does decreasing term life insurance cover?

Decreasing term life insurance is essentially a sub-type of term cover with a payout that decreases each year. Although it may seem totally pointless on the surface, it does really make sense for those who have a mortgage and want to make sure it’s covered.

Every year, your mortgage debt decreases as you continue to pay it off, so why not have your lump-sum reflect that, in order to avoid over-insuring yourself? You’ll pay cheaper premiums than basic term insurance as a result, and you only insure what you initially wanted to cover in the first place!

It’s also known as mortgage life insurance, for obvious reasons.

What is level-term insurance?

Level-term insurance is a type of term cover that will pay out the same amount regardless of when the claim is made, as long as it’s within the term’s start and end date.

You pay the same amount in premiums each month and the payout remains fixed – neither will increase nor decrease, they simply remain the same throughout the policy term.

With most standard policies, if you don’t pass away during the term, your cover lapses and you won’t receive a payout. You’ll then need to begin a new policy if you want additional cover.

Most people take out level-term life insurance to cover things like:

  • Any unpaid loans
  • Household bills
  • Children's school or university fees

For all term lengths, the most popular cover amount to take out is between £100,000 and £200,000, an amount that would pay off the majority (if not all) of your mortgage and would therefore avoid placing the financial burden on your spouse.

For more information on what policy would best suit your needs, don’t hesitate to get in touch with us at Unite Life today!

Over 50s cover

Over 50s life insurance is – you guessed it – a type of cover taken out by those aged 50 and above.

Policyholders tend to use the payout to cover funeral costs or any outstanding financial commitments when they are no longer around, including any unpaid bills.

The most influential benefit of over 50s cover is that those who apply are guaranteed to be accepted, regardless of their health or lifestyle, and the application process as a whole is far easier than other types. There is no medical check and the only medical-related question you will be asked is - ‘do you smoke?’ Regardless of the answer, you are still guaranteed to be accepted for cover.

As a policyholder, your payout is also guaranteed to go to your beneficiaries when you pass away, as long as you have been truthful in your application and have kept up-to-date with your premium payments.

What is critical illness cover?

Critical illness cover (CIC) is a type of life insurance policy available in the UK that pays out if the policyholder is diagnosed with a specified critical illness – unlike traditional life cover, which only pays out once the individual has passed away.

The cover will only pay out if your illness is specifically listed within the policy terms, so it’s crucial that you understand exactly what you’re covered for when taking out the policy. Common critical illnesses include: heart attacks, strokes and certain cancers.

Life-threatening cancers not included within critical illness cover are usually only covered by terminal illness cover, which is a policy specifically designed to pay out once a policyholder is diagnosed with a life-threatening condition. This cover may be included within your standard life insurance policy, so double check this and be sure not to over (or under) insure yourself.

The illnesses covered in a life insurance policy can differ between each provider, so be sure to check the terms and details of your personal cover before you agree to take out the insurance policy in the first place.

Other types of life cover

As if that wasn’t enough, there are also many other types of life insurance, including (but not limited to) income protection insurance and joint life insurance. The first policy is there to cover you should you be unable to work due to an illness or injury, and the latter is there predominantly for couples.

As you can see, there are a LOT of options available to us when it comes to taking out life insurance, which is why you should always seek professional advice before signing on the dotted line. 

For more information on the different types of life insurance policies available to you personally, don't hesitate to contact us today at Unite Life. Our friendly and experienced advisors are here to help provide life insurance advice and answer any queries you may have, obligation-free!

How much life insurance do I need?

How much life insurance you choose to take out depends on your personal circumstances and the type of protection you’d like – unfortunately, there’s no one-size-fits-all solution. However, we can advise you on what type of factors you should consider, in order to determine how much life cover you need.

People take out insurance for various reasons. For example, you may want a policy to protect your mortgage, to cover any debts or financial commitments, or to ensure that your children and dependants would be financially secure if you were to pass away within a certain time frame.

When determining how much cover you need personally, you should first consider the needs of you and your family or dependants (if you have any), as well as how much you can realistically afford to pay in premiums each month. You should then weigh-up the benefits of insurance against the cost of premiums.

Some factors you should consider are:

  • Do you have a mortgage to cover?
  • Do you have any outstanding loans that family members would be left with if you were to pass away?
  • Do you have dependants and could they cope without your financial backing?
  • Could your spouse handle finances without your income
  • Would you struggle to get by if you were unable to work due to a critical illness or injury?
  • Do you run a business and could it continue to run well if you were off sick?

Run through the above questions, and they should help to give yourself an idea of how much cover you might need.

If you don’t have a mortgage, any children or dependants, or a spouse, then you probably don’t need much cover, if any, just yet.

In short, how much life insurance you need depends entirely on your personal situation, which is why it pays to receive professional advice from trained brokers like ourselves who can find you a cheap quote within minutes.

For further advice, contact us today at Unite Life and we’ll be more than happy to help!

How much does life insurance cost?

So, the all-important question of cost.

Factors that affect the cost of life insurance infographic

You can purchase life insurance for as little as £6 per month with some providers in the UK, but depending on your circumstances and needs, you may need to pay slightly more for an adequate level of cover.

The overall average cost of life insurance in the UK is around £30 per month, but the amount you pay will depend on a variety of factors. It could be a lot less, around the £30-mark or more – the price depends entirely on you and your needs.

The following factors are taken into account when calculating the cost of your monthly premium:

  • Age
  • Health 
  • Lifestyle
  • Family medical record
  • Personal medical record
  • Whether you smoke or not
  • Any extreme sports or activities you regularly participate in

The cost of your cover also depends on the type of policy you take out and the level of protection you opt for, but it’s crucial that you get sufficient cover to protect your loved ones should the worst happen.

Smoking and life insurance

Smoking comes at a cost.

Whether or not you smoke is a question you’ll be asked every time you apply for life insurance, without a doubt, and the answer you give has a pretty big impact on the cost of your premiums.

A smoker could pay up to 100% more for their life insurance premium than the equivalent non-smoker, largely due to the known and proven associated health risks.

There’s really no way around it, other than to quit smoking.

Some people are tempted to lie to their provider about their smoking habit, but that could end up invalidating their policy and throwing away all the money they paid in premiums.

Despite higher premiums, it’s certainly best to be honest about any smoking habits – whether it’s cigarettes, cigars, pipes, nicotine replacement products, or e-cigarettes – because at least then your beneficiaries will receive a payout should you pass away. Any lying when applying for life insurance is likely to invalidate any claim made.

Read more: Life Insurance for Smokers

Is life insurance worth taking out?

Whether or not life insurance is worth the price in premiums generally depends on your personal situation, and the type of policy you’re looking to take out.

If you have no dependants, i.e. no children and no spouse, and no mortgage or business to take care of, then it’s fair to say that it probably wouldn’t be worth taking out life insurance. But when should you take out cover?

There’s no right or wrong answer to this – no one can say that you need to take out life insurance once you hit 18. Once again, it depends on your situation.

Despite this, most people do tend to take out cover when they:

  • Buy their first home
  • Have children 
  • Get married

Getting life insurance usually comes after one of the above milestones in life, and policyholders tend to update their policy in tandem with each milestone they reach.

Most experts suggest getting life insurance while you’re under 35, according to studies, as people are expected to be healthy and illness-free at that age, which means premiums will be cheaper.

Bear in mind that one child in 29 loses a parent before they grow up, so it’s highly recommended that people take out life insurance once their first child is born, to support them should the worst happen.

Cutting the cost of premiums

Reducing the cost of your life insurance can be done with a few simple hints and tips:

Joint life insurance or single life cover?

Couples might naturally think it’s better to take out joint life cover, which isn’t always the case.

Joint policies are slightly cheaper than two separate ones, but that doesn’t mean it’ll work out cost-efficient in the long-run.

Joint life insurance policies only pay out once, after the first person has passed away, meaning that the second person is then left without cover.

The second person will need to take out a new policy and now that they’re probably older and perhaps more of a health risk, they’re likely to face higher premiums.

Having two separate, single life cover policies is the more flexible choice, allowing you both to choose the right cover to suit each of your specific needs (different incomes, health risks and so on).

How many life insurance claims pay out?

Life insurance is a pretty safe investment, with 98% of life cover claims being paid out on average each year.

One of the main reasons why it’s not 100% is the people who are untruthful on their application.

Lying on your application for life insurance

Of the 2% of policyholders that are refused their life insurance payout, the majority are those who lied on their application. Lying on your application is essentially fraud.

Even if you get away with it initially, your payout is likely to be invalid if you pass away and the insurance provider is likely to find out that you lied about anything from being a smoker to having an existing illness.

Say, for example, you are a smoker but decide to lie on your application and state that you’re a non-smoker.

Everything is fine, you are accepted and you pay your premiums for 25 years. One day, you sadly pass away.

The cause of death is heart failure, and it is deemed that your history of smoking was a contributing factor in your death.

Your life insurance provider finds out this information, your payout could either be lowered or – even worse – denied altogether.

And legally, there’s nothing stopping the providers from doing so, because you have knowingly lied on your application. Your beneficiaries will therefore receive no payout and the premiums you paid for over 25 years will have gone to waste.

Play it safe – be honest with your insurance provider, and don’t give them any reason to invalidate your policy. They are not there to judge – they are simply there to ensure your loved ones are financially secure in the event of your death.

Write your life insurance in trust

All policyholders should have the option to write their life insurance in trust – with any decent provider, anyway.

Writing your life insurance in trust means that you’re formally noting that you want the trustee (a person or organisation of your choice) to take control of the proceeds of your life insurance once it is released, and to ensure that the payout is used for the purpose intended by you.

The trustee usually distributes the proceeds between a certain number of beneficiaries – perhaps your children – in accordance with the conditions set out in your policy.

So, why would you write your life cover in trust?

Once written in trust, a life insurance policy’s payout will not count towards your estate, so it makes administration far more straightforward, as it avoids probate and the hassle that can come with it.

Disputes are common when policies aren’t written in trust and there’s no up-to-date will, so a trust takes away a lot of the added stress that could otherwise be placed upon your loved ones.

The proceeds go straight to the trustee for distribution, in accordance with your wishes, and the beneficiaries receive their share either immediately, or at a time specifically noted by you within the agreement.

For example, you could set up a life insurance trust to be released when your children turn 21, when they buy their first home, or when they leave full-time education.

By law, the trustee must act on your wishes, but it is important that you choose someone trusted and reliable – either a close friend or relative that is used to handling finances, or even a solicitor.

Avoid inheritance tax with life insurance in trust

If you’re still not convinced by the benefits of life insurance trusts, then perhaps you’ll be interested if we tell you that it could help you avoid the hefty 40% inheritance tax bill.

Writing your life insurance in trust is an entirely legal way of avoiding inheritance tax, because it isn’t included as part of your estate.

This means your beneficiaries will get exactly the amount you have paid for, without being hit by the 40% inheritance tax.

What is life insurance indexation?

Indexation may seem confusing at first, but it really isn’t. Index-linking your life insurance policy essentially means that the value of your policy will increase in conjunction with inflation.

This means that your premiums could rise each year, but the payout will, too.

How? Indexation uses the Retail Price Index (RPI) or Consumer Price Index (CPI) to track the level of inflation in the UK each year.

These systems are not broad guesstimates or assumptions; they look at everything from the price of bread and milk to the council tax rate, to gauge an idea of the year’s inflation.

So, for example, RPI tells us that a policy in 1975 worth £15,000 would be the equivalent of £124,787.32 today – an incredible increase.

Index-linking your policy may cost slightly more in terms of premiums, but it ensures that you maintain the cash value of your life cover policy and will benefit your loved ones greatly in the long-run.

The policy will probably rise around 5% each year, but that really adds up over time, allowing your beneficiaries to receive a payout that’s fair to what you initially agreed all those years ago.

Life insurance that pays back if you don’t die – outliving your term policy

It is true, a person can out-live their term life insurance policy – but what happens to the money they’ve paid in, does their cash simply go to waste?

Traditionally, the only way a person would be guaranteed a life insurance payout is by taking out whole of life cover or over 50s life insurance, which lasts until you pass away regardless.

Most term life insurance policies’ conditions mean that if a policyholder doesn’t pass away during their term, the cover lapses and the provider would keep the premiums.

However, in recent times, return of premium (ROP) insurance or life insurance cashback policies have surged in popularity.

This specialist type of life insurance enables policyholders to receive a percentage of their premiums back, in cash, from the provider if they do not pass away during the term.

It may not be the full amount, but it’s nice to know that your premiums won’t have gone to waste if you do not pass away during the term.

It may take some digging, as not all providers offer return of premium or cashback for life insurance policies, but they’re certainly on the rise. Ask us for more information at Unite Life today!

Health and life insurance

It’s no secret that the fitter and healthier you are, the more likely you are to be offered cheaper life insurance premiums.

Leading an active and healthy lifestyle can dramatically cut the cost of certain life insurance policies, and if you’ve already got life cover and have recently made changes to your lifestyle, it’s certainly worth informing your provider and reviewing your policy, or even looking elsewhere for cheaper deals if they aren’t budging.

At Unite Life, we can review your current policy and try to find you a new, cheaper deal – obligation-free. Simply get in touch with us today!

Being healthy means that you’re less of a risk to insurers, as it’s been proven that people with more active lifestyles benefit from a range of health benefits and are therefore less likely to be diagnosed with certain illnesses.

But how exactly can you prove that you’re healthy and active? Technology…

Can activity trackers reduce the cost of life insurance?

Wearable activity and health trackers have been a godsend for insurance providers, as it gives them some solid evidence to form a judgement of how active a person’s lifestyle is.

Wearable fitness tracking devices and smart watches have become very popular in recent times and they serve as pretty useful little gadgets – whether their primary purpose is simply motivating an individual or measuring their activity more accurately.

As well as their health benefits, they could also reduce the cost of life insurance premiums if they are linked to a participating provider’s policy.

How do extreme sports impact life insurance?

If you choose to regularly jump out of airplanes, climb mountains, or ride motorcycles down steep hills, it’s likely to have an impact on your life insurance.

People that participate in extreme sports are more of a risk to insurance providers than those who don’t, simply because of the risk that they are under when doing such activities.

There’s no doubting that it’s an exciting lifestyle, but it’s not going to help your chances of getting a cheap life insurance deal. In fact, you may even struggle to find a provider to cover you at all.

There are policies out there for everyone though, regardless of your lifestyle choice, you just need to get in touch with the right life insurance broker to find you the perfect policy and price – and that’s what we are here for at Unite Life!

Here's a list of the sports that insurers consider extreme:

  • Base jumping
  • Parachuting
  • Sky diving
  • Mountaineering
  • Rock climbing
  • Certain motor sports
  • Wingsuit flying (soaring through the air like a big flying squirrel)

If you frequently participate in any of the extreme sports above, it's likely that you may need to pay an additional premium on your life insurance, as the risks associated with such activities mean that many insurers will be wary of covering you. Here at Unite Life, we work to find the most affordable and best life insurance cover for all of our clients, regardless of their lifestyle choices and the sports they take part in.

Can I have more than one life insurance policy in the UK?

You can absolutely have more than one life insurance policy in place in the UK, just as your beneficiaries are able to claim from more than one policy when you pass away.

There’s nothing stopping you from having multiple, separate life insurance policies; you can have as many as you like and as many as you believe is necessary.

But be sure not to over-insure yourself, as it may not work out as cost-effective as you might think.

Whether you have one life insurance policy to cover all-bases or you choose to split your insurance over multiple policies depends on your situation.

There’s no ‘correct’ or ‘incorrect’ way of organising your insurance because, as with most insurance policies, there’s not a straightforward answer without knowing your needs and preferences. 

Just make sure that you have enough protection to cover yourself and/or your loved ones should the worst happen to you.

How to buy life insurance in the UK

Finding a good life insurance quote online is difficult. With so many comparison sites and insurance companies out there, it can take quite a lot of time and effort to find the right policy for you. At Unite Life, we’re here to help!

We are a life insurance broker, which means that we can scour all the different policies available with the top insurance providers in the UK – this allows us to look for the very best one to suit you, your needs and your budget.

We hope our complete life insurance guide has answered any questions you may have, but be sure to get in touch with us today, obligation-free, with any questions or queries, and we’ll be more than happy to help answer them.

If you’d like us to review your current policy to make sure you and your loved ones are properly covered, we can do that too!

Related articles and guides:

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