What is life insurance and where can you get the best deals?
Life insurance gives you peace of mind that your family would be provided for if you were to die. It can either pay off a mortgage, provide money for living costs or both.
What is life insurance?
Life insurance pays out a lump sum or sometimes a regular amount if you die or are diagnosed with a terminal illness to help the people who rely on you financially, such as your partner and children, pay their bills.
There are two types of term life insurance, which you take out over a specific period – decreasing term and level term. Decreasing term life insurance is designed to pay off your mortgage so the amount it pays out decreases over time as the amount you owe on your mortgage decreases. Level term, which is more expensive, pays out the same amount throughout the term of the policy.
You can also take out whole-of-life insurance, which pays a lump sum to your family whenever you die, but this is more expensive than term insurance as it always pays out.
Events in your life that mean you should consider taking out life insurance including buying a home with a partner and having children. You should also review the cover you have regularly to see if it still meets your needs, especially when there are significant changes in your life.
How does life insurance work?
You pay a monthly premium to an insurer in return for financial protection for your family if you were to die or be diagnosed with a terminal illness that meant you would be unlikely to live for more than 12 months.
When you take out a policy, you decide how much you would want it to pay out depending on what your family would need. If you’re taking it out to pay off a mortgage, you would take it out for at least the outstanding balance of your mortgage over the same period as the term remaining on it.
If you’re taking out life insurance to cover living costs, when deciding how much cover to get and how long for, you need to think about what your family’s monthly bills would be, how they might change in the future and whether you would want it to cover the mortgage as well.
You can take out a policy for yourself or jointly with your partner, which would usually pay out when the first person died. This can be cheaper than getting two separate policies.
Life insurance pros and cons
• It provides for your family financially in the event of your death.
• The monthly premiums are generally affordable, especially if you take a policy out when you are relatively young.
• You can decide how much cover you want and how long you want to be covered for, depending on your family’s needs.
• If you die after the term of the policy ends it pays out nothing.
• A fixed sum paid out by a level term insurance policy could be worth less by the time it’s paid out because of inflation so might not be enough to cover what it needs to.
• Decreasing term insurance usually only covers the mortgage and doesn’t provide money for living costs.
• Some things aren’t covered, such as suicide or self-harm in the first 12 months of the policy and undisclosed pre-existing medical conditions.
Which life insurance comparison site can save you the most?
We gathered life insurance quotes from the four biggest price comparison sites – Compare the Market, Confused.com, Go Compare and MoneySuperMarket – for three different scenarios to give you an idea of how much you might pay and how quotes differ.
The quotes below are for £200,000 of level term insurance for 20 years for a 30-year-old, 40-year-old and 50-year-old who have never smoked, are a healthy weight and have six alcoholic drinks a week.
Prices are per month. The cheapest quote for each scenario is shown in bold.
Some comparison sites offer rewards when you take out certain types of insurance with them. Compare the Market is the only one of the four we looked at to give you rewards for taking out life insurance. Details are included below.
Life insurance comparison site costs compared:
|Comparison site||30-year-old||40-year-old||50-year-old||Comparison site rewards|
|Compare the Market||£6.75 (Budget Insurance) |
£25 Amazon.co.uk gift card after 3 monthly payments
|£13.49 (AIG) |
£50 Amazon.co.uk gift card after 3 monthly payments
|£32.67 (Legal & General) |
£135 Amazon.co.uk gift card after 3 monthly payments
|2 for 1 cinema tickets on Tuesdays and Wednesdays; discounts on takeaway food and eating out; Amazon.co.uk gift card (see individual quotes for details)|
|Confused.com||£7.08 (Legal & General)||£13.91 (Legal & General)||£32.86 (Legal & General)||None|
|GoCompare||£7.33 (Budget Insurance)||£14.50 (Canada Life)||£32.84 (AIG)||None|
|MoneySuperMarket||£7.42 (Budget Insurance)||£13.92 (Beagle Street)||£32.84 (AIG)||None|
Notes: Quotes gathered on 5 July 2021.
As you can see in the table, quotes for the same scenario from different comparison sites vary slightly, even if they are from the same insurer. This could be because of the specific deals they have set up with them.
Compare the Market was the cheapest for all our scenarios when we gathered the quotes but prices can change frequently so wouldn’t necessarily be the cheapest every time or for every situation. It also offers rewards for taking out a policy but you should always choose one because it’s best for your needs rather than just because of the rewards you’ll get.
Life insurance FAQs:
How can you get the best life insurance quotes?
As quotes can differ between comparison sites, you should use two or three to get the best price for your circumstances and make sure you’re comparing like for like. Don’t just choose a policy based on price – make sure it’s right for you.
It’s also worth considering getting advice from a life insurance broker, which will be able to provide you with quotes for policies tailored to your needs, especially if you have pre-existing medical conditions.
Which comparison site works with the most life insurance providers?
Online, MoneySuperMarket works with 13 life insurance providers while Confused.com works with 12, GoCompare works with 11 and Compare the Market works with 10.
Compare the Market and MoneySuperMarket are both partnered with life insurance broker Lifesearch and you can get access to more providers by speaking to Lifesearch directly over the phone.
Bear in mind that the comparison site that works with the most insurers won’t necessarily offer you the cheapest quotes.
Do I need life insurance?
Life insurance isn’t compulsory, but if your dependents wouldn’t be able to cope financially if you passed away you should seriously consider it. It’s particularly important if you have a mortgage that they wouldn’t be able to pay without your income, which could result in them losing their home.
How much does life insurance cost?
In our cheapest scenario for a 30-year-old it costs as little as £6.75 a month or £81 a year but it gets more expensive the older you are when you take it out as you’re more likely to develop health conditions. For a 50-year-old it would cost up to £32.84 or around £394 a year based on the quotes we gathered.
According to MoneySuperMarket, a 30-year-old non-smoker could get £100,000 of level term cover over 20 years for as little as £4.56 a month (price from April 2021).
Premiums can be guaranteed, where they will stay the same throughout the term of the policy, or reviewable, where the insurer can change the price periodically. Reviewable policies start with lower premiums than guaranteed ones but may end up costing more. You should check which applies to the policies you’re comparing and choose the option you prefer when you take a policy out.
What does life insurance cover?
Life insurance provides cover if you die during the term of the policy (or whenever you die in the case of a whole-of-life policy) and usually if you are diagnosed with a terminal illness that means you are likely to die within 12 months.
You can also choose to add critical illness cover, which means your life insurance would pay out if you couldn’t work because you were diagnosed with a serious illness such as cancer or a heart condition.
Death by suicide or self-harm isn’t usually covered within 12 months of taking out the policy. You also won’t be covered if you die due to drug or alcohol abuse, a criminal offence, dangerous activities or pre-existing medical conditions you haven’t declared.
How much life insurance cover do I need?
You should take out cover for the amount you think your family would need to manage financially if you were to die. Costs to take into account include your mortgage or rent, day-to-day living costs, paying off outstanding debts, childcare, education and the cost of your funeral. When deciding on the length of the term, consider how long they’ll need support for – this could be until your partner retires, for example.
Many comparison sites have calculators to help you work out how much cover you need.
How can I reduce the cost of life insurance?
The younger you are when you take out life insurance the cheaper it will be. You’ll also get a cheaper policy by living a healthier lifestyle so give up smoking, reduce how much alcohol you drink and lose weight if you’re overweight.
The amount of cover you get and the length of the term will also affect the cost but you should make sure you have the cover you need or at least as much as you can afford. On the other hand, don’t pay over the odds by getting more than you need and take into account any cover you already get from your employer.
Decreasing term life insurance is cheaper than level term but make sure it wouldn’t leave your family short if you were to die.
Once you take out life insurance you should put your policy in trust, which would mean the amount it paid out wouldn’t be included in your estate for inheritance tax purposes and your family would get the money more quickly.