What is life insurance?

Put simply: life insurance is an insurance policy that pays out if you die. It can be used to make sure the loved ones you leave behind are financially secure without you and your income. It can also ensure that no-one else would be left liable for your outstanding debts (like a mortgage) if you died.

How does life insurance work?

A life insurance policy covers you in case you die while you're insured. When you buy a p0licy, you're covered for a lump sum payout amount, paid out if you die. In some cases, the policy will pay out early if you're diagnosed with a terminal illness.

You also choose a policy type and term when you buy life cover. The type determines what happens to your payout amount over time (i.e. whether it stays the same or reduces) and the term defines how long you'll be insured.

Are there different types of life insurance?

Yes, there are a few different types of life cover – from term life insurance and whole-of-life insurance to over-50s life insurance and family income benefit.

The most common type is term life insurance, which covers you if you die within the ‘term’ of your policy. People often get this kind of cover to insure them while they have other fixed-term financial commitments – like a mortgage. You can time it so that your mortgage and life insurance terms end at the same time, so you're only insured for as long as you have that financial liability.

Term life insurance can either be level or decreasing. Level term life cover will always pay out the same amount, whether you die near the beginning or end of your policy term. Decreasing term life cover will pay out gradually less over time – suitable if your financial liabilities also reduce over time. This makes decreasing cover more affordable than level cover.

Who needs life insurance?

The quick answer is: anyone with dependents. Life insurance is an insurance policy designed to give financial support to the loved ones you leave behind if you die – so you only need it if you have other people who’d be financially affected by your death. People with dependents can includes couples, parents, single parents, homeowners, renters, and the self-employed.

If you don't have any financial dependents at the moment, life insurance might not be the priority kind of insurance for you to get in place. However, it's worth bearing in mind that life insurance is cheaper the younger and healthier you are, so if you think your circumstances will change in the future, it's a good idea to explore your options sooner rather than later.

When does life insurance pay out?

It depends on the type of life insurance you have, but if you have term life cover, your policy will pay out if you die within the term of your policy. It also relies on you having been honest about your health and lifestyle when you applied.

The only time life insurance won't pay out is if you were dishonest about your health when you applied or you're not insured when you die – because your policy has ended, you've missed premium payments, or you've cancelled your policy. It might not pay out if you meet an exclusion.

Read our guide to when life insurance does (and doesn't) pay out.


What's the best life insurance for me?

There's lots to consider when working out the ‘best’ life insurance for you. We always recommend making sure the cover you buy is suitable for:

  • Your needs (i.e. it would pay for things you'd need to it to when a claim is made)
  • Your profile (i.e. it's the most suitable policy and insurer based on your age, health and lifestyle)
  • Your budget (i.e. it's sufficient but also affordable, especially as you could be paying monthly premiums for many years)

It's easier to pin down your profile and budget than it is your life insurance needs. You need to think about what your needs are now, and what they'll be in the future. To do this, you need to consider what financial commitments and financial dependents you have.

You then need to think about the nuances of each of these. Like: how much do your commitments amount to and will they end at some point in the future? How many dependents do you have, what’s the nature of their dependency, and could they be financially independent at some point in the future? And how would all of this change without you around?

Ultimately, the best life insurance for you is the cover that would sufficiently meet the needs you have now and the needs you think you’d have in the future.


How much life insurance do I need?

To work out how much life insurance you need, it can be useful to think about what the lump sum would actually be used for. In lots of cases, this would change over time – i.e. what it’d be needed for if you died in 5 years’ time, for example, is different to what it’d be needed for in 25 years’ time. Lots of people take out life insurance to protect things like:

  • Outstanding debts (like a mortgage or personal loan)
  • The living expenses and lifestyle costs their family would still have if they died
  • University fees or school fees for their children
  • Their own funeral costs

Depending on what you’re trying to protect, and what will happen to your needs over time, there’ll be different types of policies to suit you. If the amount you’d need in the future is less than what you’d need tomorrow, you might go for a decreasing policy. If the amount will always stay the same, or go up, you might choose a level or increasing policy.

Ultimately, getting life insurance is about trying to make sure the things that are important to you will be paid for or protected after you die. That could mean something tangible, like a mortgage, or something less tangible, like making sure your family has enough money to maintain their lifestyle if you died.


Best life insurance companies

  • Aegon
  • AIG
  • Aviva
  • Canada Life
  • Legal & General
  • LV=
  • Royal London
  • Scottish Widows
  • Vitality
  • Zurich

These are some of the most well-known players in the life insurance market – but what's important to remember is that everyone's life insurance needs are different. This means the 'best' life insurance company is the one that has the right policy for you (which won't be the same for everyone). This is why it's impossible to say 'this' life insurance company is categorically better than 'that' life insurance company.

Lots of people will assume that the ‘best’ life insurance company is the one that offers the most affordable policy. But with life insurance, it's more nuanced than that. It's not just about price – but how an insurer can cater for your needs and profile in an affordable way. It can also help to know how favourably (or not) different insurers will look on your application depending on things like your health and lifestyle.

Comparing life insurance companies is often about finding the best value for money based on your circumstances. You can’t compare how much would be paid out (because that amount would be the same, based on how much cover you buy) – but you can compare the cost of insuring that amount over the same period of time; the number of exclusions, benefits and degree of flexibility a policy has; and what % of claims providers pay out.

Life insurance price comparison based on smoking status


The following prices are based on:

  • 25-year-old, male or female office worker
  • £300,000 of decreasing life insurance cover for 25 years
Insurer/product Non-smoker Smoker Anorak review
Aegon
Reducing Term
£7.65 £11.53 Read our Aegon life insurance review
AIG
Instant Life Insurance
£7.34 £9.10 Read our AIG life insurance review
Aviva
Simple Life Insurance
£5.96 £8.82 Read our Aviva life insurance review
Canada Life
CanProtect Decreasing Term
£6.65 £10.08 Read our Canada Life life insurance review
Legal & General
Decreasing Life
£6.00 £8.70 Read our Legal & General life insurance review
LV=
FPP Online
£8.00 (minimum premium) £9.40 Read our LV= life insurance review
Royal London
Personal Menu Plan
£6.32 £10.30 Read our Royal London life insurance review
Scottish Widows
Decreasing Term
£5.75 £9.28 Read our Scottish Widows life insurance review
Vitality
Life Cover
£8.03 £12.73 Read our VitalityLife life insurance review
Zurich
Life Cover
£6.27 £9.37 Read our Zurich life insurance review

Quoted on 10/11/2021

Life insurance price comparison based on age


The following prices are based on:

  • Healthy, non-smoking, male or female office worker
  • £300,000 of decreasing life insurance cover for 25 years
Insurer/product 25 year old 35 year old 45 year old Anorak review
Aegon
Reducing Term
£7.65 £10.53 £19.47 Read our Aegon life insurance review
AIG
Instant Life Insurance
£7.34 £9.54 £19.64 Read our AIG life insurance review
Aviva
Simple Life Insurance
£5.96 £8.42 £18.94 Read our Aviva life insurance review
Canada Life
CanProtect Decreasing Term
£6.65 £9.91 £19.97 Read our Canada Life life insurance review
Legal & General
Decreasing Life
£6.00 £8.60 £19.24 Read our Legal & General life insurance review
LV=
FPP Online
£8.00 (minimum premium) £14.48 £19.69 Read our LV= life insurance review
Royal London
Personal Menu Plan
£6.32 £9.77 £19.61 Read our Royal London life insurance review
Scottish Widows
Decreasing Term
£5.75 £9.10 £18.76 Read our Scottish Widows life insurance review
Vitality
Life Cover
£8.03 £12.56 £25.97 Read our Vitality life insurance review
Zurich
Life Cover
£6.27 £9.29 £19.35 Read our Zurich life insurance review

Quoted on 10/11/2021


Understanding life insurance policy features

One way to compare any insurance policy is to consider what features, benefits or exclusions they do or don’t have. The trouble with life insurance is that most policies come with similar (if not the same) set of features, so it can be tricky to tell them apart. This is one of the reasons people get stuck when trying to choose what to buy.

Terms and features What it means and how it works
Exclusions Having an exclusion on your life insurance policy means there are certain circumstances in which your insurer wouldn’t pay out the lump sum. Most life insurance policies exclude suicide, for example, if you die by suicide within a year of taking out the policy.
Guaranteed premiums Having guaranteed premiums means the amount you pay each month to be insured (the ‘premium’) will always stay the same. If you have a level policy, this means you’ll always pay exactly the same amount each month for as long as you hold the policy. If you have an increasing policy, your premiums will increase at a guaranteed rate, in line with inflation.
Guaranteed insurability Having guaranteed insurability means being able to increase your life insurance cover after certain life events – without going through medical underwriting again. This usually includes things like: getting married or entering a civil partnership; becoming a parent; taking out a new mortgage or remortgaging; getting a significant pay rise; and so on.
Waiver of premium Waiver of premium is a handy add-on that means you don’t have to pay your monthly life insurance premiums if you’re off work for medical reasons for a certain period of time. This can really help you out at a time when you might otherwise be financially struggling – and you’ll still be covered by your policy even while your payments are being waived.
Terminal illness benefit Having terminal illness benefit means your insurer will pay out your lump sum early if you get a terminal diagnosis. For most insurers, this means a doctor saying you have a year or less to live.

What not to worry about

Worrying about whether or not an insurance policy will pay out when you need it to is not uncommon. Lots of people do. But with life insurance, this shouldn’t be a concern, because it’s a policy that pays out if you die – so it’s pretty black and white.

That said, there may be some variations in your policy that make things a little more grey – like terminal illness benefit (which may mean the lump sum is paid out early) or suicide exclusion (which may mean it’s not paid out at all). It’s important to be aware of these. It’s also important to provide accurate, honest information when you apply for the policy, so your claim doesn’t get rejected because of misrepresentation.

Beyond that, all insurers are covered by the FSCS (Financial Services Compensation Scheme) – so if the insurance company folded, your payout would be safe. Last up, to have the best chance of the right person/people receiving the payout straight away, it’s worth making sure they know about your life insurance policy and where to find the details.


Which life insurer is right for you?

Choosing which policy and insurer to go for when buying life insurance takes time. There's lots to consider and compare. But protecting your family financially in case the worst happens to you should never be about guesswork.

This is why we created Anorak. We're an independent online broker for life insurance, which means we're here to help you make truly informed decisions when buying cover. We provide regulated advice and help you choose which insurer to go for based on your unique circumstances – so you have peace of mind you're choosing the right one (especially if the most suitable insurer for you is actually one you haven't used before).

Use Anorak's online tool or talk to one of our advisers over the phone to get:

  • Free advice about your life insurance needs
  • Helping choose the right policy and insurer
  • Peace of mind that you're making informed decisions
Which life insurer is best for you? Let's work it out, starting with your age:
18-24
25-34
35-44
45+
What is the average life insurance cost per month UK?
The cost of life insurance is highly variable depending who is buying the cover and what cover they are buying, so it’s tricky to give a reliable average. Things which affect the price include your profile (age, health, lifestyle) and many factors around the cover itself (type, term, amount). See our guide to how much life insurance costs for some typical prices.
How much does £100,000 of life insurance cost?
The price of life insurance is different per person, based on your profile and the type of cover you're buying. Here's some examples of how much well-known insurers would charge for £100,000 of level cover. Prices quoted on 21/10/21, based on a healthy non-smoker.

Insurer 25 year old 35 year old 45 year old
Legal & General £3.77* £7.57 £15.54
Aviva £4.37* £7.68 £16.13
AIG £5.35 £7.06 £14.58

*These premiums fall below insurer minimums (usually £5/month), so the insurer would likely increase the amount covered so it reaches the minimum premium.
When should you get life insurance?
It’s best to buy life insurance as soon as you need it, because the sooner you buy it: the cheaper it is. The price of life insurance goes up with age and your health history plays a part too, so it’s a good idea to take out a policy when you’re young, fit and healthy, if possible. Here's more about who needs life insurance.
Why would life insurance not pay out?
Life insurance won’t pay out if you die outside of your policy term, after cancelling your policy, or after the insurer has cancelled your policy (due to missed payments). It might not pay out if you meet an exclusion (death by suicide within the first year of taking out the policy is a common one). Read more in our guide to when life insurance pays out.
What's the age limit for life insurance?
You can take out life insurance from the age of 18. In terms of a maximum age, most insurers set their own limit or have a maximum policy term (e.g. 50 years). People often time their life insurance to end at retirement age.
How many life insurance policies can I have in the UK?
You can have as many life insurance policies as you want or need, though some insurers may have a maximum amount they’ll cover in total. Before taking out a new life insurance policy, you should always check whether it’s possible to update your existing policy so it better suits your needs. Here's our guide to buying more than one life insurance policy.

This guide is intended for informative purposes only and does not constitute advice.