Best & cheapest life insurance in the UK
In this article we help you to identify the best life insurance policy for you, which type is best and how to accurately compare the cost.
While we advise you to read the whole article you can jump straight to the key sections by clicking on the hyperlinks below:
- Who should get life insurance and is it worth it?
- Which is the best life insurance policy for me?
- How much life insurance do I need?
- How much does life insurance cost?
- Compare life insurance policies
What is life insurance and how does it work?
What is life insurance?
Life insurance is a contract between an individual(s) and an insurance company where in the event of death a lump sum is usually paid to the insured deceased's estate. Usually, the life insurance contract runs for an agreed period of time, called 'the term'. The insurance company will charge a monthly premium for the specified level of life cover. How much the life insurance premium is will be determined by the insurance company underwriters based on a number of factors including your age, occupation and medical history. Quite simply the greater the chances of a premature death the higher your premium will be. A life policy that insures only a single person (often called a single life insurance policy) will stop once a claim is made or the term expires, whichever is earlier. Most life insurance policies only have a value in the event of a claim, they can not be cashed in, much like car insurance. It is possible to take a life insurance policy out on a joint life basis which means that the policy will insure the lives of more than one person. In this instance, the policy can be set up as 'joint life first death' or 'joint life second death' which determines at which point the policy pays out.
What types of life insurance are available?
- Level term insurance - where the amount of life insurance cover provided remains level throughout the term of the policy, at the end of which the life cover will cease. This type of policy is ideal for paying off an interest-only mortgage in the event of death
- Decreasing term insurance - also referred to as mortgage protection insurance where the level of life insurance reduces over the term of the policy at the end of which life cover will cease. This type of insurance is ideal for covering the outstanding debt on a repayment mortgage
- Increasing term insurance - where the life insurance provided and premiums increase annually over the term of the policy to keep the cover in line with inflation
- Convertible term insurance - a term insurance policy that can be converted to a whole life policy, if required, during the term
- Renewable term insurance - a term insurance policy with an option to renew the policy at the end of the term without the need for a health review
- Whole of life insurance - where life insurance is provided for the whole of a person's life and will pay out in the event of death whenever that occurs. Often there is an investment element to a whole of life policy
- Over 50's life insurance - a term insurance policy for people aged 50 and over. There is no underwriting, meaning you are guaranteed to be accepted.
- Family income benefit - a term insurance policy where a monthly amount is paid instead of a lump sum in the event of death. As the total payment would be less than with a term insurance policy the premiums will usually be less
- Critical illness insurance - a term insurance policy where a lump sum is payable on the diagnosis of a critical illness. The insurance policy will cover a specified list of critical illnesses such as bowel cancer etc
- Serious illness cover - this is like critical illness cover but where the size of the lump sum paid in the event of a claim will vary depending on the severity of the illness. Often serious illness insurance will cover more critical illnesses than ordinary critical illness cover
- Joint life insurance - most life insurance policies can be arranged on a joint life basis where a lump sum is payable in the event of the death of one life insured. This type of life insurance is usually (but not always) cheaper than two individual policies as there is only ever one lump sum payable
Who should get life insurance and is it worth it?
Who needs life insurance depends on their individual circumstances. Below I list those people who should consider it and why they would have life insurance:
- life insurance is a vital part of financial planning for anybody with dependants to ensure they are provided for should you die
- anybody with a mortgage should have life insurance cover to pay off the mortgage debt in the event of premature death, as a bare minimum
- business owners should consider life insurance cover to protect the business in the event of the premature death of a key person in the organisation - this would provide a lump sum to keep the business going while you employ a replacement
- business shareholders should consider life insurance which will buy out other shareholder in the event of their death to maintain control of the company
- life insurance can also be used to cover any potential inheritance tax liability arising from a person's death
Things to bear in mind:
- premiums for a term insurance policy are inexpensive and normally well within the reach of most family's budget
- age, medical history and lifestyle may affect the cost of life insurance so it makes sense to arrange life insurance early in life, before any medical problems develop, to keep the premiums low
Can you buy more than one life insurance policy?
There is no theoretical limit to the number of life insurance policies one person can buy. However, life insurance companies will ask about other life insurance policies you have. In addition, the reinsurers (who reinsure life insurance policies from multiple insurance companies) will want full details of all your existing insurance policies. The reason they want to know this is to ensure that they are not over-exposed to the risk of your death. If they are and/or you cannot provide a valid reason for an unusually high level of life insurance cover then they may not accept your life insurance application. So you can buy multiple life insurance policies (2 or more), but the overall sum insured has to remain sensible.
Which is the best life insurance policy for me?
The table below is a guide of how to choose life insurance and which is the best life insurance policy in certain scenarios.
|Type of life insurance policy||Who this type of life insurance is best for|
|Level term insurance||Ideal for those with interest-only mortgages, those where the need for cover remains constant, useful for Inheritance tax (IHT) mitigation or cover for parents until their children are no longer dependent|
|Decreasing term insurance||Ideal for protecting a repayment mortgage or scenarios where the level of cover decreases over time (i.e IHT on a gift)|
|Increasing term insurance||Providing a lump sum that will keep pace with inflation (if the lump sum is to be used to buy an asset)|
|Convertible term insurance||Those requiring flexibility. This type of policy is rarely used|
|Renewable term insurance||Where someone has a temporary need (say 10 years) which may extend (i.e. to provide life cover while building assets that will be sufficient to replace it).|
|Whole of life insurance||To clear an IHT bill on an estate or to provide a lump sum on death whenever that occurs.|
|Over 50's life insurance||A policy usually taken out to cover funeral expenses and acceptance is guaranteed meaning it is popular with those with a complex medical history|
|Family income benefit||Ideal for looking after dependents in the event of death, otherwise a level term policy would require them to make sure the lump sum payout lasts|
|Critical illness insurance||An expensive policy but worthwhile if you can afford the premiums. It pays out if you have a critical illness even if you make a full recovery|
|Joint life insurance||Ideal for couples (with or without children) and people who have a joint mortgage|
How much life insurance do I need?
- there is no hard and fast rule about how much life insurance you need but it should be enough to cover your outstanding mortgage and other debts as a minimum if you were to die. Ideally, it will also provide enough to replace some of your income for your dependents
- if you are a business owner then the amount of life insurance should be enough to purchase any equity the deceased had in the business and the cost of sourcing a replacement employee.
How much does life insurance cost?
- the cost of life insurance will depend on a number of factors including – sum assured, term of policy, age, medical history and lifestyle (but crucially not your gender)
- policies can start as low as £5 per month. We’ve analysed how much £100,000 of life insurance costs per month to give you an idea
- obviously the shorter the term and the lower the sum assured the lower the monthly premiums will be
- life insurance provides financial security at a time when you need it the most. It does so at a cost that is within everybody’s reach and so some form of life cover is essential if you have a mortgage, a family or a business.
The best life insurance quote tool we’ve found covering the whole of the marketInstantly see how much life insurance will cost you
Best life insurance companies
There is no one life insurance company that could be referred to as ‘the best life insurance company’ as such but some are certainly better than others for each unique set of circumstances.
We have analysed over 500 life insurance quotes comparing prices for both smokers and non-smokers for 10 of the biggest life insurance providers. We looked at life insurance quotes for 25, 35, 45 and 55-year-olds and analysed the quotes based on five different levels of cover; £100k, £200k, £300k, £400k and £500k.
We ranked each provider based on cost, ranking them from 1 to 10 for each age range and level of cover. We totalled the numbers and came up with our top 10 displayed below. Remember that the top 10 is based on our own research and uses averaging and so you shouldn’t use it to inform your buying decision as your circumstances may be different.
Top 10 life insurance companies for smokers
- Scottish Widows
- Old Mutual
- Royal London
Top 10 life insurance companies for non smokers
- Royal London
- Scottish Widows
- Old Mutual
Remember, each insurance company will underwrite your application differently and will set your monthly premium in accordance with their internal risk management rules. That is why I would always recommend that you use this life insurance quote tool and then speak to the experts behind it. Consumers are misled into thinking that the monthly premium that any price comparison site spits out is what they will end up paying. This is rarely the case as each application is then assessed on its own merits, which is why the experts can match you with the insurance company who will view your application most favourably. They will also be able to guide you on the correct amount of cover for your own circumstances and provide advice on how to ensure your family don’t pay any tax on any of the proceeds
Get the best life insurance for you
We have put together a guide on how to get the best life insurance for you. Just click on this link to read the guide – How much life insurance do you need and where to get the best life insurance for your needs
Compare life insurance policies
We have sourced the best life insurance comparison site on the market (with over 1,000 five star reviews on reviews.co.uk) to quickly compare life insurance policies from the top UK life insurance companies. Just click on this link to get started – Compare Life insurance quotes