Term life insurance explained
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Quick answer: Term life insurance pays a lump sum if you die within the policy term — level term keeps payout fixed, decreasing term matches mortgage balance and costs less.
Life cover protects dependants who rely on your income if you die during the policy term. FCA-regulated advisers and brokers must recommend suitable cover for your circumstances. This guide explains the main policy types and why writing a policy in trust can help your family.
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Read the full insurance guide →Life insurance basics →Primary source: www.gov.uk/consumer-protection-rights
How much cover
A common rule of thumb is ten times your salary plus outstanding debts, but dependants, childcare costs and funeral expenses all need a personal calculation. A couple with young children may need more cover than the salary multiple alone suggests.
Dual-income couples often insure both lives even when one partner earns less. Replacing childcare and household work has a real cost that a lower salary figure does not capture.
Medical underwriting
The application asks detailed health and lifestyle questions, and non-disclosure can void a claim later even if you die from an unrelated condition. Answer honestly and declare pre-existing conditions as requested.
Some policies exclude pre-existing conditions or charge higher premiums for higher-risk applicants. Read the exclusions carefully before you sign, as cheaper cover may leave gaps where you need protection most.
Trusts and tax
Putting a policy in trust names beneficiaries directly, which avoids probate delay and may keep proceeds outside your estate for inheritance tax purposes. This is especially useful if your estate is near the nil-rate band.
Mortgage lenders may require decreasing term cover assigned to them until the loan is repaid. Check whether your lender insists on this before arranging a separate policy in trust.
Common questions
Is life insurance taxable?
Payouts are usually free of income tax for beneficiaries. Inheritance tax may apply if the policy is not written in trust and your total estate exceeds the available thresholds.
Can I cancel if I pay off mortgage?
Yes — decreasing term cover linked to a mortgage may no longer be needed once the loan is cleared. Consider keeping level term cover if you still have dependants who rely on your income.
Does terminal illness cover differ?
Many policies pay out early if you receive a terminal diagnosis with less than twelve months to live. Check the policy wording, as definitions and time limits vary between insurers.