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Life Insurance Explained: A Plain-English UK Guide
What life insurance is, how it works, the types of cover, what affects the price and how to work out how much you need, explained simply by Blackburn protection advisers.
Life insurance is a policy that pays a lump sum to the people you choose if you die while the policy is in force. In return, you pay a monthly premium. That's the whole idea: if your income, or your share of the bills, disappeared tomorrow, the payout gives your family time and money to cope without having to sell the house or drain their savings.
It sounds simple, but there are enough types, terms and jargon words to put people off. This guide covers what life insurance is, how it works, the main types of cover, what affects the price and how to work out a sensible amount, in plain English.
What is life insurance?
Life insurance (sometimes called life cover) is a contract between you and an insurer. You agree to pay a regular premium. The insurer agrees to pay a fixed amount, called the sum assured, to your beneficiaries if you die during the policy term.
The payout is normally a single lump sum, and your family can use it however they need to: clearing the mortgage, covering everyday bills, paying for childcare or funeral costs, or simply giving them breathing space. Life insurance is one type of protection insurance, alongside critical illness cover and income protection.
How does life insurance work?
You choose the cover. You decide how much cover you want and for how long, for example £250,000 over 25 years to match a mortgage.
The insurer assesses you. You answer questions about your age, health, lifestyle and occupation. This is called underwriting, and it determines your premium.
You pay a monthly premium. On most policies the premium stays the same for the whole term.
A claim is made if the worst happens. If you die within the term, your family (or the executors of your estate) contact the insurer, provide the documents it asks for and the insurer pays the sum assured.
If you outlive the term, the policy simply ends. Term life insurance has no cash-in value, just like car insurance doesn't give you money back for a year without a crash. What you've bought is the protection.
The main types of life insurance
Level term life insurance
The payout stays the same throughout the term. It suits goals that don't shrink over time, such as leaving a lump sum for your children or covering an interest-only mortgage.
Decreasing term life insurance
The amount of cover falls over the term, broadly in line with a repayment mortgage balance. Because the insurer's potential payout shrinks, it is usually cheaper than level cover. Our mortgage protection insurance page explains how this works in practice.
Increasing term life insurance
The cover (and the premium) rises each year, usually in line with inflation, so the payout keeps its buying power.
Family income benefit
Instead of one lump sum, this pays a regular monthly income to your family until the end of the term. It's often cheaper than a lump sum policy, and some families find a monthly payment easier to manage than a large one-off sum. Read more about family income benefit.
Whole of life insurance
This covers you for your entire life, so the policy pays out whenever you die, provided you keep paying the premiums. Because a payout is certain to happen eventually, it costs considerably more than term cover. It's most often used for leaving an inheritance or helping with an inheritance tax bill. See our whole of life insurance page.
Over 50s life insurance
Aimed at people over 50 who want a smaller guaranteed payout, often to help with funeral costs. Over 50s life insurance usually doesn't ask medical questions, but it's worth checking how much you'll pay in total compared with what the policy pays out.
Single or joint policies
A single policy covers one person. A joint policy covers two people but usually pays out only once, on the first death, and then ends. Two single policies cost a little more but can each pay out, which is why many couples choose them. Neither is right for everyone, and an adviser can talk through which suits your situation.
Do I need life insurance?
You probably do if anyone would struggle financially without you. The most common reasons are:
You have a mortgage or other debts that someone else would need to keep paying.
You have children or other dependants who rely on your income.
Your partner couldn't comfortably cover the household bills on their income alone.
You want to leave something behind, whether that's for funeral costs or an inheritance.
You run a business and others rely on you. (Business protection covers that side.)
If you're single with no debts and nobody depending on you, life insurance is usually less pressing. Things change when you buy a house, get married or have children, and those are the moments most people take cover out.
Check your death in service benefit first. Many employers include life cover in your employment package, often a multiple of your salary. It's worth knowing exactly what you have, but remember it normally stops when you leave the job, and it may not be enough to clear a mortgage and replace your income.
How much life insurance do I need?
There's no single right answer, but there is a sensible way to get to a number.
A rule of thumb you'll often see is to aim for around 10 times your annual income. It's a quick starting point, but it ignores your actual debts, how many people depend on you and what you already have in place. A better method is to add up what your family would really need:
Debts: the outstanding mortgage plus any loans, car finance and credit cards.
Income replacement: the yearly amount your family would need, multiplied by the number of years they'd need it (for example, until the youngest child finishes school).
One-off costs: funeral costs and anything else you'd want covered, such as a child's university fund.
Then subtract savings, existing life cover and death in service benefits.
A worked example
Here's an illustrative family, with made-up numbers to show how it works:
Remaining mortgage: £140,000
Other debts (car finance and a loan): £10,000
Income replacement: £20,000 a year for 10 years = £200,000
Funeral costs: £4,000
Total need: £354,000
Less death in service from an employer (3 × £30,000 salary): −£90,000
Cover to look at: around £264,000
Your own figures will be different, and that's the point: the right amount depends on your circumstances, not a formula. We're happy to run through this with you for free.
How much does life insurance cost?
Life insurance is often cheaper than people expect, especially if you take it out young and healthy. We can't give you a meaningful figure without knowing your details, but the factors that affect your premium are:
Age. The older you are when you start, the more you pay.
Health and medical history. Existing conditions, family history, height and weight can all be taken into account.
Smoking and vaping. Smokers pay noticeably more than non-smokers, and insurers now ask about vaping as well.
The amount of cover. A bigger payout costs more.
The length of the term. A longer term costs more than a shorter one.
Type of cover. Decreasing cover is usually cheaper than level cover, and whole of life costs more than term.
Occupation and lifestyle. Dangerous jobs, hobbies and extended travel to certain countries can all push the price up.
Add-ons. Adding critical illness cover costs more but pays out if you are diagnosed with a specified serious condition.
Most policies are guaranteed, meaning the premium is fixed for the term. Some are reviewable, which means the insurer can change the price later. Always check which you're being offered.
Will my life insurance actually pay out?
This is the worry we hear most often, and the reassuring answer is that the large majority of claims are paid. According to the Association of British Insurers, insurers paid close to 98% of new individual protection claims in 2024.
Most of the claims that don't get paid come down to a few avoidable things:
Not telling the truth on the application. You have a legal duty to take reasonable care to answer the insurer's questions accurately. Mention medical history, smoking, occupation and alcohol honestly, even when you're not sure it matters.
Policy exclusions. For example, death by suicide within the first 12 months is typically excluded.
Cover that has lapsed. If you stop paying premiums, the cover stops.
Life insurance and tax: what about writing it in trust?
A life insurance payout is generally paid tax-free to your beneficiaries. However, if the policy isn't set up correctly, the payout can count as part of your estate. That can mean a delay while probate is sorted out and, for larger estates, a possible inheritance tax bill.
Writing a policy in trust is a simple legal arrangement that can allow the money to go straight to the people you've named, often faster and potentially outside your estate. Many insurers offer this free of charge when you take out the policy. It's worth asking about when you apply, and getting advice if your situation is more complex.
Can I get life insurance with a health condition?
Often, yes. Plenty of people with conditions such as diabetes, high blood pressure or a history of anxiety and depression can still get cover. Depending on the condition, an insurer might offer standard terms, charge a higher premium, add an exclusion or, in some cases, postpone a decision. Different insurers assess the same condition differently, so it's a good reason to speak to a broker rather than accept the first answer you're given.
How to buy life insurance
Work out what you need using the steps above.
Check what you already have, such as death in service or an existing policy.
Get advice or compare quotes. Prices and underwriting vary between insurers, and a good adviser will explain the small print as well as the price.
Answer every question honestly.
Consider a trust and make sure your beneficiaries know the policy exists.
Review it every few years, and whenever your life changes: a new baby, a house move, a pay rise or a separation.
Life insurance FAQs
What does life insurance not cover?
Exclusions vary by insurer, but common ones include death by suicide in the first 12 months and claims where important information wasn't disclosed at the start. Check the policy documents for the full list.
Is life insurance the same as critical illness cover?
No. Life insurance pays out when you die. Critical illness cover pays out if you're diagnosed with a specified serious illness, such as certain cancers, a heart attack or a stroke. They can be bought together or separately.
Can I have more than one life insurance policy?
Yes. Some people hold separate policies for different purposes, such as one decreasing policy for the mortgage and one level policy for family income. Insurers will ask about any existing cover.
What happens if I stop paying my premiums?
Term life insurance has no cash-in value, so the cover simply stops after a short grace period and nothing is paid out.
Can I get life insurance if I'm over 50 or over 60?
Yes, though premiums are higher because of the greater risk. Term cover, whole of life and over 50s plans are all possible options depending on what you're trying to achieve.
Do I need a medical to get life insurance?
Not always. Many applications are decided on the questions you answer alone. Larger amounts of cover, or certain medical answers, may mean the insurer asks for a GP report or a nurse screening.
Talk to a Blackburn-based adviser
Red Rose Insurance Solutions is a Blackburn-based protection brokerage, and we help families across Lancashire and the rest of the UK find life insurance that fits their circumstances and their budget. We offer free life insurance reviews, so if you already have a policy and aren't sure it's the right one, we'll take a look. Or, if you're starting from scratch, you can get a free, no-obligation quote or read more about our life insurance cover.
This article is for general information only and is not personal financial advice. Cover, eligibility and pricing vary by insurer and individual circumstances.