Complete guide to life insurance in the UK: protect your family’s future

Understand life insurance in the UK, from choosing the right policy to protecting your loved ones with financial security after you're gone

Por: Bruna Silveira em 13 de September de 2024 Última atualização em: 9 de December de 2024

Life insurance may sound absurd to many people as it involves the death of the person you care about.

Family is what you love the most. You spent your life working hard for your family so they get to live well.

But, if you were the only breadwinner, and you were to die, what would your family do? This thought might be frightening and this topic is hard to discuss and digest, yet an important one.

What is life insurance?

Life insurance is like a lifeguard to your family after you die. It’s like you left someone to look after your family in case of your sudden death.

It is a policy to make you feel relaxed that your family will not face any difficulties regarding their expenses after your death.

How does life insurance work?

If you’re the only breadwinner for your family in the UK, then it’s worth thinking about who will be their caretaker in your absence.

It can be terrifying to think that your family will have to move on even after your death, so what can you do to help them move on if you die? Life insurance is the answer to your question.

Multiple life insurance companies offer different types of coverage that are tailored to fit your budget and needs.

If you purchase a policy, you will have to pay monthly premiums, and if you die during the policy, your family will still get a tax-free lump sum or monthly payments.

The amount of regular payments depends on the policy you bought, it also includes if you want the policy to cover mortgage or rent, or just leave it up for the inheritance.

How much is life insurance?

Purchasing life insurance also requires to be based on the rule of thumb. You should always compare prices and get quotes from multiple dealers so that you can find the cheapest one tailored according to your needs.

Try not to fall for the policies offered directly by your bank or insurer, they can be expensive. The best way to buy the cheapest policy is to go to the broker.

The cost of policies can significantly vary from provider to provider, type of coverage and what’s included.

So, it is up to you to find the right person and the right policy that matches your needs and budget.

When you purchase a life insurance policy in the UK, you will be given 2 options to pay your premiums:

Guaranteed – It means that the price of premiums will be fixed and can’t be changed over the life of the policy.
Reviewable – It may feel tempting due to the cheap rates at first, but if the policy is reviewable, your insurer may revise the rates and what initially felt cheap could cost you a lot in the long run.

So, it is important to purchase the policy wisely, after taking care of all the terms and conditions, so you don’t have to face any difficulties while paying for it.

What are the main types of life insurance?

There are several different options if you are looking to find the right cover for your loved ones in the UK, so you need to assess all the possibilities before choosing one.

Term life insurance policies

Term life insurance policies run for a specific term, such as 5, 10, or 25 years. If you die during the policy, they will pay out. There are 3 different types of term life insurance policies:

Level: The level of cover stays the same throughout the time. It means your dependents will get the lump sum amount if you die within the agreed term.

Decreasing: The level of cover reduces every year. This policy is designed to pay mortgages etc. As outstanding loan keeps reducing, the level of cover keeps decreasing as well.

Increasing: This policy is designed to deal with inflation. The level of cover keeps increasing every year.

Whole life insurance policies

These policies can be more expensive than useful. Whenever you die, they will pay out if you have been paying your premiums.

But you might end up paying more than what your family will get out.

Do you need life insurance?

If you live in the UK with a family that you love, and you are the only breadwinner of the family, then you should consider a life insurance policy.

Furthermore, every person with people on his/her income should consider taking the life insurance policy.

However, you need to know that a life insurance policy doesn’t pay if you lose your job or have an accident, it will only pay in case you die. Here’s why you need life insurance:

If you have young school-going kids
If you have a spouse that relies on you
If your family lives in a house that is still on mortgage, or they have to pay rent monthly

There are a few more things to help you find out if you don’t need life insurance in the UK:

If you don’t have any dependent family
You don’t have a spouse that relies financially on you
You are eligible for state funds
If you already have a cover, some companies offer death-in-service cover for their employees. If you already have that cover, you don’t need any other protection.

What age is best to get life insurance?

Usually, people start thinking about such things when they are older, married or have a dependent family.

But, the fact is, the younger you get the policy in the UK, the cheaper your premiums will be.

It means you should invest in the life insurance policy in the 20’s.

How do I buy life insurance?

It is important to visit the market before you buy anything. This is especially true for life insurance policies.

If you want to buy one, you should check around and compare prices. Here’s how and where you can find the best policy that also suits your budget.

Find a broker
Talk to a financial adviser
Ask your bank
Credit card company
Get it directly from the insurance company

How to cancel life insurance?

Canceling an insurance policy shouldn’t be a problem if you have been keeping up with your premiums.

You can cancel the policy anytime by asking your insurer to do so. But here’s a few things you should know:

There aren’t usually any cancellation charges, you will just have to stop paying for it.
If you have any medical conditions then they will be covered by your new policy.
If you cancel the policy, you won’t be able to reinstate the policy.

Is life insurance worth it in the UK?

Life insurance policies aren’t mandatory like car insurance in the UK, but they are worth considering if you are worried about the future of your family, in case of your death.

Point to ponder: Taking a life insurance policy in old age will be expensive, and it will not pay out as much as you paid for it. If you want to take one, do it at a young age.

Final words

Life insurance policies provide financial protection for your family if you die.

UK residents are not legally required to buy life insurance policies like car insurance, but it can give you peace of mind knowing that you will have someone to look after your family in your absence.

If you want to buy a life insurance policy, do not do it without comparing prices and getting quotes from different insurers.

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