Life insurance, explained

Life insurance pays money to the people you choose if you die while the policy is in force. You pay a regular premium, and in return the insurer agrees to pay out a set amount on a valid claim. MoneyHelper describes the payout as either a lump sum or regular payments, giving the people who depend on you financial support after you've gone.

Most policies fall into two families. Term policies run for a fixed number of years and only pay out if you die within that time. Whole of life policies pay out whenever you die, as long as the premiums have been kept up. Everything else (joint cover, decreasing cover for a mortgage, family income benefit, over-50s plans) is a variation on those two.

Who life insurance is for

Life insurance exists to replace money that would stop if you died. MoneyHelper's examples are the obvious ones: a family living in a house with a mortgage you pay, children who rely on your income, or wanting something set aside for funeral costs.

It is less useful if nobody depends on your income. MoneyHelper points out that someone with no dependants may get more value from income protection, because life insurance only pays out on death, not when you lose income through illness. If that's your situation, see income protection and critical illness cover.

Before buying, it is worth checking what you may already have:

• Death in service cover from work. MoneyHelper notes this is often three to four times salary. It stops if you leave that employer.
• Existing policies, including any taken out with a mortgage years ago.
• State bereavement support. Bereavement Support Payment is a fixed sum, not a replacement for a salary, but it is part of the picture.

The main types of life insurance

MoneyHelper describes level term as the simplest and most affordable option, and decreasing term as designed for repayment mortgages, where the loan shrinks over time. HMRC's own manual describes mortgage protection cover the same way: a capital sum on death within a set period that reduces as the loan does.

Each type has its own guide:

• Term life insurance: level, decreasing and increasing cover
• Whole of life insurance: lifelong cover and Inheritance Tax
• Joint life insurance: one policy for two people, or two policies
• Family income benefit: a monthly income instead of a lump sum
• Over-50s life insurance: plans with no health questions

How much cover, and for how long

MoneyHelper suggests basing the amount on your debts, your mortgage or rent, the number of people who depend on you, and your take-home pay or other income. A simple way to start is to list what would need paying off on day one, then what your household would need each month and for how many years.

The length usually follows the need. A mortgage policy often matches the mortgage term. Cover for children often runs until the youngest is expected to be financially independent.

What changes the cost

Insurers price life cover on how likely they think a claim is during the policy. MoneyHelper lists these factors:

• your age
• your health and family medical history
• whether you smoke
• your lifestyle
• your occupation (a high-risk job can push premiums up)
• the length of the policy
• the amount of cover

Whole of life cover typically costs more than term cover, because it is certain to pay out if premiums are kept up. Some policies also let you add waiver of premium, which MoneyHelper describes as an extra that pays your premiums automatically if you can't work because of accident or illness.

Why the application matters so much

When a claim is made, MoneyHelper says the insurer will check your medical history. If you didn't answer the application questions truthfully or accurately, the insurer might not pay out.

The law here is the Consumer Insurance (Disclosure and Representations) Act 2012. It says you must take reasonable care not to make a misrepresentation when you apply. If an answer was wrong and the insurer can show it would have refused you or offered different terms, it has remedies. These range from paying part of the claim to cancelling the policy and refusing the claim. The detail is in our guide to declined life insurance claims.

Who gets the money: trusts and nominations

If a policy isn't set up to pay a named person or trust, MoneyHelper says the proceeds go into your estate. That can mean a long wait while the estate is sorted out, and the payout may count towards Inheritance Tax.

On Inheritance Tax, GOV.UK says the standard rate is 40% on the part of an estate above the £325,000 threshold, with no tax normally due on what you leave to a spouse or civil partner. Inheritance Tax usually has to be paid by the end of the sixth month after death, and some of it normally has to be paid before the executors can get probate (called confirmation in Scotland).

Writing a policy in trust means the trustees, not your estate, are entitled to the payout. Many insurers offer a trust form when you take out cover. See life insurance in trust for how this works in England, Wales and Scotland.

Life insurance in Scotland

The cover itself works the same across the UK, but the law around it does not:

• Confirmation, not probate. In Scotland, an executor applies to the sheriff court for confirmation. The Scottish Courts and Tribunals Service notes that banks, building societies and insurance companies often ask for it before releasing money.
• A Scottish statute for family policies. Under the Married Women's Policies of Assurance (Scotland) Act 1880, a policy on your own life that is expressed to be for your spouse or children (civil partners are covered too) is treated as a trust for them. It does not form part of your estate. Unmarried partners are not covered by this Act, so they need a different kind of trust.
• Trust law is changing. The Trusts and Succession (Scotland) Act 2024 modernises Scottish trust law. Only some parts are in force so far, so it is worth asking a solicitor to check how it affects a policy trust.

How claims work

When someone dies, the person claiming (often a family member, executor or trustee) contacts the insurer, which explains what evidence it needs. FCA rules require insurers to give reasonable guidance to help people make a claim, to handle claims promptly and fairly, and not to unreasonably reject a claim. The insurer will usually look at medical records.

Most claims are paid. The ABI reports that 97.9% of individual protection claims were paid in 2025. Speed varies. In a review published in November 2024, the FCA found firms took on average between 53 and 122 days to process a term insurance claim from start to finish, and 53 days for whole of life.

What to check in your policy

• Sum assured, and whether it is level, decreasing or increasing
• Policy end date, and whether it still matches your mortgage and your children's ages
• Who it pays: a trust, nominated beneficiaries, or your estate
• Trust paperwork: whether a trust deed exists, who the trustees are, and whether they are still alive and willing to act
• Single or joint, and whether a joint policy pays on the first or second death
• Exclusions, including any added because of your health or hobbies
• Waiver of premium and any other add-ons you are paying for
• Premium type: whether premiums are fixed or can be reviewed
• Your application answers: ask for a copy so you know what the insurer was told
• Missed payments: how long the grace period is before cover lapses

When to talk to a regulated adviser

InsuredRight explains how cover works but doesn't recommend products. A regulated financial adviser or protection broker can look at your circumstances and recommend a policy. A solicitor can help with trusts and wills, especially in Scotland, where the rules differ.

If you're struggling to pay, MoneyHelper says insurers must support customers in financial difficulty, so contact the insurer before cancelling or missing a payment.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.