The Ultimate Guide To UK Life Insurance in 2021

The Ultimate Guide To UK Life Insurance in 2021 Thumbnail

Posted 11th January 2021 by James Holden

Last updated on February 7th, 2023 at 09:54 am

Why is Life Insurance important in 2021?

It’s no secret that the cost of living in the United Kingdom is expensive, especially if you have children who are financially dependent on you. With mortgages, food and drink, bills, transport, clothes, technology, holidays, university fees, weddings, pets and more… you don’t need a financial adviser to tell you there’s so many things that your income pays for.

So what would happen if you were to unexpectedly pass away? Although we expect to live into our old age, there’s always the possibility we’ll die in a car accident, be a victim of crime, or develop terminal cancer. In fact, every 22 minutes a child in the UK loses a parent they depend on financially1. If you were no longer around, with little to no warning, how would your household costs be paid?

Your mortgage company or landlord will expect your next of kin to continue paying the monthly fee, or your loved ones could be forced to leave and lose the roof over their heads. The utility bills do not stop just because you’re not there and your children will still need feeding, clothing and the latest technology. Without you around your loved ones may still want to go on holiday, get married or attend university, but without your income they may find it harder or impossible to afford.

What is a Life Insurance Policy?

In return for a monthly fee paid to an insurance company, your loved ones will receive a fixed payout if you were to die during the agreed term. This payout can be used however your family deems fit, but is often used to pay off outstanding mortgages and debt, pay for the funeral cost, with the remainder used towards their ongoing living expenses.

For example, you might take out a life insurance policy for £300,000 over 20 years in return for a monthly cost of £10.2 If you died during those 20 years, provided you didn’t miss any payments and were honest on your application, your family would receive the £300,000. If you don’t die within the 20 years, or you cancel your policy before the 20 years is up, you will lose the payments you have made to the insurance company.

Is Life Insurance a waste of money? Whilst it’s true that the odds of dying before old age are very low, data from the Office of National Statistics shows tens of thousands of Brits ages 18 – 49 pass away each year from a wide range of causes. All drivers in the UK are required to have car insurance and most homeowners have house insurance (sometimes a condition of a mortgage) – these premiums are not refunded if you don’t make a claim – yet life cover is often neglected, but is arguably the most valuable insurance available.

Life Insurance or Life Assurance?

What is the difference between Life Insurance and Life Assurance?

Life insurance policies will pay out if you pass away during the specified term. This is also known as Term Life Insurance, and usually covers a person from 5 years to 30 years, therefore there is a good chance the insurance company will not need to pay out.

Life assurance does not have an expiry date and is therefore guaranteed to provide a payout when you die, no matter when this happens, providing that your premiums were paid as per the insurance agreement. This is often referred to as Whole Of Life cover.

So, is Life Assurance better than Life Insurance? There’s no right answer but when making a comparison it’s important to note that Whole of Life is generally much more expensive than Term Cover and the payouts are much less. Whole of Life is usually popular with older people who have very little savings and want certainty of payout to help towards expenses such as their funeral cost, whereas Term Cover is usually popular with the majority of people (young and middle-age parents) who are mainly concerned about protecting their family’s mortgage payments and other outstanding debts.

However, it’s worth noting that the terms ‘life insurance’ and ‘life assurance’ are often used interchangeably and can vary from Provider to Provider, so it’s very important to read and understand the terms of a policy before making an application.

Types of Life Insurance in the United Kingdom

There are several types of life insurance policies. The first is Level Term Life – the amount of cover will not change over the term of the plan and your monthly premiums will not change either. This means your policy is fixed from the moment it goes live and can give you peace of mind knowing exactly what you need to pay and exactly how much your family will receive.

The second type of life insurance is Increasing Term – your cover amount increases by a set percentage each year and your premiums also rise by a set percentage. This type of cover is often taken out by those who are concerned about the affect of inflation on a potential life insurance payout.

Thirdly there’s Decreasing Cover, also known as Mortgage Life Insurance. This means that the amount of cover you’d potentially receive decreases each year, and as such the insurance premiums are cheaper. The reason people like this type of term insurance is because it falls in line with their biggest debt, their mortgage, and as their debt decreases there’s less requirement to be paying for a large pay-out.

How to get a Cheap Life Insurance Policy

Obtaining a cheap life insurance policy isn’t difficult, if you are in good health, because unlike other types of insurance, you can choose how much your monthly premiums are. Life insurance works around your budget, so if you only want to pay £10 per month then you can. However, the price you pay for your life cover policy will affect the maximum lump sum payout you’ll be entitled to. It’s therefore important not to think in terms of cheap life insurance cover, but rather affordable life insurance cover.

As a rule of thumb, you need to consider your mortgage balance, outstanding debts, tax liability and then multiply your annual income by 10. Think about one-off expenses that your children may need to pay for in the future, but would struggle without you, such as university fees, weddings and house deposits. It is usually better to over-estimate your family’s living costs so that your family are not left in financial difficulty should the worst happen.

Life insurance is cheaper the younger you get it and the healthier you are. As you can request for your premiums to be fixed with Level Term Cover, it’s not abnormal to obtain £1,000,000 worth of cover for under £20 per month if you’re under the age of 302. Insurance policies are more expensive if you’re a smoker or a heavy drinker, so to get the best prices you should focus on leading a healthier lifestyle. If you have a medical condition this will also have an affect on your premiums. You should never lie about your medical history when getting a life insurance quote, as doing so may invalidate any claims. It’s also worth noting that a medical exam may be a requirement from the life insurance companies.

Where can I get the cheapest Life Insurance quotes?

In order to get the best life insurance policy for you you’ll want to obtain as many life insurance quotes as possible, probably by using a life insurance comparison service or family life insurance broker. Whilst there are many websites which boast instant online quotes you should be aware that these may not be accurate. Life insurance is personalised to each person and therefore the monthly payments can depend on your life insurance application and the required health questionnaires. Therefore many people like to avoid ‘one size fits all’ comparison websites and use the services of a broker. Expect a life insurance application to take up to an hour on the phone, but once done, you won’t need to worry about it again unless your life dramatically changes, and you will be left with peace of mind, so long as you maintain the monthly premiums.

How do I get cheap life insurance?

Can I get Life Insurance with a Pre Existing Medical Condition?

If you’re under the age of 50 it is absolutely possible to get life insurance with a pre-existing medical condition, but it can be a more lengthy process and your life insurance premium may reflect the added risk to the insurance provider. Approaching a life insurance broker can really benefit you as they have in-depth expertise and knowledge regarding what life insurance companies do and do not accept, and can offer you specialist information. Contrary to popular beliefs, many insurers do cover medical conditions such as diabetes, thyroid problems, HIV, epilepsy and others.

If you’re over the age of 50 with one or more medical conditions you can opt for a specialist Over 50’s Life Insurance plan. These plans have guaranteed acceptance because they do not require a medical check. The insurance premiums for over 50s life insurance are higher due to the added risk, but can be an excellent compromise if you are not in perfect health but want the benefits of cover.

Will Life Insurance payout if I become ill?

Many life insurance policies have a clause which says you’ll receive a payment if you’re diagnosed with a terminal illness during the policy term. This provides further peace of mind, allowing you to use the insurance money to help your family financially prepare for your death, or even use some of it to tick off items from your bucket list and make some amazing memories with your family.

In addition to life insurance you can take out Critical Illness Cover. This insurance pays out to you whilst you’re living, should you be diagnosed with a critical illness from a list of conditions, during the qualifying period. If you suffer a stroke, have a heart attack or develop certain forms of cancer then you’ll receive a lump sum payment from the critical illness insurance to help you take care of your finances, at a time when you may not be able to work. There are pros and cons to critical illness insurance. Government benefits often do not provide a large enough income to provide sufficient income protection should you get ill, so this type of policy that can be very beneficial. 

Critical illness plans may not cover all definitions of a critical illness. The definitions vary between product providers and will be contained in the Key Features and Policy Document if you go ahead with a plan.

What are the tax implications of life insurance?

Life insurance in the United Kingdom provides a tax free cash lump sum. However, unless you put the insurance into Trust, the lump sum is included in the deceased’s estate and therefore some or all of it may be subject to inheritance tax, depending on whether or not the overall value of your estate is above £325,000.

Some people use life insurance for tax planning purposes. As part of inheritance tax planning wealthier individuals take out life insurance policies for the purpose of covering their family’s tax liability upon their death. It is best to get independent advice from a financial adviser if you are interested in using a life insurance policy for tax purposes.

If you put your life insurance policy in Trust then the payout is not taken into account when inheritance tax is calculated. There are also other benefits to using a Trust for life insurance, including being able to specify the beneficiaries and usually ensuring the payout is faster due to avoiding the probate process.

Inheritance tax planning and trusts are not regulated by the Financial Conduct Authority.

Tax implications of life insurance

Can I get multiple Life Insurance policies?

You can buy more than one life insurance policy, yes. It’s very financially responsible to check your level of cover after a period of time to ensure a payout would cover your family’s financial needs. Due to the premiums being based on the risk at the time of taking out the policy, you’ll likely need to create a new policy to sit alongside it. This may mean you have several direct debits going out for life insurance, but there’s no limit to how many your family can claim on should they need to.

There are many reasons why you’d want to take out a new life insurance policy. Here’s just a few examples of why you may get additional policies:

  • You buy a new property and wish to get further mortgage cover.
  • You become a parent or guardian to a child and wish to protect their future.
  • You marry someone and don’t want them to worry about finances if you were gone.
  • You get a significant pay rise and wish to protect your improved quality of life.
  • You take on substantial debt and don’t want others to ever be responsible for this.
  • You start or grow a business and wish to protect your business partners.

What is the Best 10 Life Insurance Company in 2021?

Life insurance companies within the UK are often very well known brands with global footprints and have been around for hundreds of years. With their long standing comes fantastic reputations and solid financial foundations. It’s worth noting that no matter who you take out insurance with, your life policy is protected by Financial Ombudsman and the FSCS protections, meaning that even if an insurer went ‘bust’ your policy would be protected. Here’s our top list of UK insurers, in no particular order:

Does Life Insurance Payout? 

It’s a common misconception that life insurance won’t pay out. However, you can have peace of mind knowing that the likelihood is that it will. Unlike other insurances where there is lots of small print to argue over, with life insurance it’s pretty clear cut – you’re either dead or you’re not.

In 2019, over £5.3 billion was paid out on British protection policies with an average 98.3% of claims paid. That’s the equivalent of £15.8 million paid every day. (, May 2020). For Whole of Life insurance, 99.99% of claims were paid.

The main reason a policy wouldn’t pay out is if you’ve not been totally honest and open during the application process. Life insurance companies don’t wish to judge you, they simply need to know everything in order to ensure you’re fairly and properly insured should your family need to make a claim.

What’s the Worst Life Insurance Company?

Here’s the pay out data of 9 top UK life insurance providers from 2016 – 2018, which shows how fiercely the companies compete to pay out as many claims as possible.

Insurer 2016 2017 2018
AIG 95% 99% 99%
Vitality Life 99% 99% 99.8%
Zurich 98% 99% 99.7%
Scottish Widows 99.4% 98.9% 99.3%
Aviva 98.9% 98.9% 98.9%
Aegon 98% 98% 98%
Legal & General 98.6% 98% 97%
Royal London 96.8% 97.3% 95.2%
Liverpool Victoria 98% 95% 95%

The insurers don’t want to deny claims as it reflects badly on both them and the industry. Whilst the payout statistics from previous years can be an indicator for which is the worst life insurance company you should also consider why policies don’t always pay out.

If other policy holders have lied on their applications, such as saying they were a non smoker when actually they were, is it fair to blame the insurer for denying those claims in order to keep premiums low for others?

When ranking insurers from best to worst it’s also important to also take into account the age of these companies. With age comes reputation and most have been around for centuries, such as Scottish Widows which was founded in 1815 so is well over 200 years old.

What age should I get life insurance?

What Age Should I Get Life Insurance? 

For most people it’s not age but life experiences which prompts their interest in obtaining life insurance. Parents of babies and young children make up the largest segment of customers. At any age if you’ve got children you should consider what would happen if you were suddenly not here. Do you have a partner who could continue paying for the financial responsibilities of the children? If your partner has to go to a job would you they need to pay for childcare? According to the Money Advice Service childcare in the UK costs an average of £13,104 per child per year. Alternatively if your child would be taken in by friends or family would you expect them to pay for their upbringing or want to provide them with the financial means to do so?

Purchasing a new house is another big reason why people decide to consider life insurance, wanting to ensure their next of kin are not saddled with the debt of their outstanding mortgage if the unexpected was to happen. If a property is not covered then your family may be forced to sell it, which can be stressful and upsetting during their time of grieving, or the mortgage company could repossess it.

If you’re financially savvy and wish to obtain life insurance before these major life events then you can maximise your insurance benefit by locking in a low monthly cost at a young age. A 25 year old with no underlying health conditions could get £200,000 cover until they reach 55 for £5 per month2. Providing they maintain the direct debits for the whole 30 years, which is easier to do when premiums are lower, they’d have paid out £1,800 in total. That’s a potential insurance benefit of x111. If the same person at 40 decided to wait to get insurance after they’d bought a house and had children to get their £200,000 cover until age 55, it could cost closer to £18 per month (based on 2021 prices with 3% annual inflation added). Over the 15 years they’d pay £4,050 which means the insurance benefit would be significantly lower at just x49.

How Do I Get Life Insurance? 

One of the most popular ways to purchase life insurance in the United Kingdom is by using a broker, such as Protect Line. This is a fee-free service which will take your details and talk you through the options available to you. Searching all the top providers they’ll then share the best quotes for your personal situation, sharing the pros and cons of each. Once you’ve made your decision Protect Line will set-up the policy on your behalf. This is a free service so you won’t pay anything other than your monthly direct debit to the insurer. Join 230,000+ customers in using award-winning Protect Line for your life insurance quote: click here.

(Protection plans with no investment element will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.)


  2. Life insurance quotes generated on using the Webline service and are accurate as of 21/01/21