Life insurance is one of the highest-impact protection decisions a household can make — and one of the most frequently deferred. If you have dependants, a mortgage, or anyone who relies on your income, life insurance is the financial safety net that ensures those people can survive financially if you die. A healthy 35-year-old non-smoker can get £100,000 of cover for 25 years for as little as £5/month. This hub explains the cover types, how to size your cover correctly, and how life insurance fits alongside critical illness and income protection.
The three protection risks — and how they differ
Most households need to protect against three separate financial risks, and no single product covers all three equally:
| Risk | Product | How it pays | When it pays |
|---|---|---|---|
| Death of an earner | Life insurance | Lump sum | On death within term |
| Serious illness diagnosis | Critical illness cover | Lump sum | On qualifying diagnosis |
| Inability to work | Income protection | Monthly income | During period of incapacity |
Buying only life insurance leaves the other two risks unprotected. The right combination depends on your household setup, existing employer benefits, and budget.
Types of life insurance explained
Term life insurance
Term insurance covers you for a fixed period — typically 10–30 years. It pays out if you die within the term; if you outlive it, the policy ends with no payout. Term insurance is the most affordable type and suits most people with a mortgage and dependants.
Level term — the payout amount stays the same throughout the term. Best for income replacement.
Decreasing term — the payout reduces over time, typically in line with your mortgage balance. Cheaper than level term and designed for mortgage protection.
Increasing term — payout rises each year, usually linked to inflation. Maintains real value over long terms.
Whole of life insurance
Whole of life policies have no fixed end date and are guaranteed to pay out eventually. They are substantially more expensive for the same cover amount. The primary uses are:
- Inheritance tax (IHT) planning — ring-fenced payouts outside your estate
- Covering funeral expenses with certainty
- Leaving a guaranteed inheritance
For most families with a mortgage, term insurance is the right starting point.
Over-50s life insurance
Over-50s plans are a form of whole of life insurance that does not require a medical — acceptance is guaranteed for applicants aged 50–85. Cover amounts are lower (typically £3,000–£20,000) and premiums can eventually exceed the payout if you live a long time. They suit people who cannot get standard insurance due to health but want to cover funeral costs.
How much life insurance do you need?
| Component | How to estimate it |
|---|---|
| Mortgage or rent | Full outstanding balance, or enough years of rental payments |
| Income replacement | Annual salary × number of years dependants need support |
| Child costs | Childcare costs, education costs through to independence |
| Debts | Credit card and loan balances |
| Final expenses | Funeral costs, estate administration (~£5,000–£10,000) |
A common rule of thumb is 10× salary plus outstanding mortgage. For a household with a £40,000 salary and £200,000 mortgage, that suggests £400,000+ in total cover. Joint cover (one policy, one payout) is cheaper but leaves the surviving partner without cover after the claim. Two single policies are usually better.
Typical costs in 2026
The table below shows indicative monthly premiums for a healthy non-smoker, £100,000 level term, 25 years:
| Age | Indicative monthly premium |
|---|---|
| 25 | ~£4–£5 |
| 30 | ~£5–£6 |
| 35 | ~£5–£8 |
| 40 | ~£8–£13 |
| 45 | ~£12–£20 |
| 50 | ~£18–£30 |
Smokers typically pay 50–100% more. Pre-existing conditions, family history of serious illness, and higher BMI all increase premiums. The earlier you buy, the lower your rate — and that rate is usually fixed for the life of the policy.
Worked example — sizing cover for a family
Mark (38) and Emma (36) in Leeds. Two children, ages 4 and 7. Mortgage: £220,000 outstanding, 22 years remaining. Mark earns £45,000, Emma earns £28,000.
Emma is the primary carer and would struggle financially without Mark’s income. Mark needs:
- Mortgage clearance: £220,000 (decreasing term policy matching the mortgage)
- Income replacement: £30,000 × 15 years = £450,000 (for the children to reach independence)
- Combined cover needed: ~£670,000 (can be split across policies)
A £220,000 decreasing term policy for 22 years (to clear the mortgage) might cost £12/month. A separate £450,000 level term policy for 20 years might cost £18–£22/month.
Total: ~£30–34/month for meaningful family protection.
Placing life insurance in trust — why it matters
If a life insurance payout lands in your estate, it:
- Goes through probate (can take 6–12 months)
- Is subject to inheritance tax if your estate exceeds the nil-rate band (£325,000 in 2026/27)
Writing the policy in trust sidesteps both problems — the payout goes directly to named beneficiaries without delay or IHT. Setting up a trust costs nothing with most major insurers and takes 15–20 minutes. Ask at the point of purchase.
Common mistakes to avoid
| Mistake | Why it’s a problem |
|---|---|
| Buying joint cover instead of two single policies | Only pays out once; survivor is then uninsured |
| Not writing the policy in trust | Payout can be delayed and taxed |
| Underestimating cover needed | Salary × 5 is rarely enough with a mortgage and children |
| Not reviewing cover after life events | Divorce, new mortgage, new children all change your needs |
| Stopping payments during financial pressure | Policy lapses; reinstatement is not guaranteed |
Cluster articles in this section
- Best Life Insurance UK 2026
- How Much Life Insurance Do I Need UK?
- Over 50s Life Insurance UK
- Life Insurance for Your Mortgage
- Critical Illness Cover Guide UK
- Income Protection Insurance UK
Related hubs
- Car Insurance Hub — motor cover, young drivers, no-claims discounts
- Home Insurance Hub — buildings, contents, landlord cover
- Pensions and Retirement Hub — long-term financial security alongside protection
- Life Events Hub — financial planning for marriage, new baby, bereavement