Life Insurance

How does life insurance work?

Life insurance protects your family in the event of your death. For this reason, life insurance is also known as death insurance.

The amount you can pay for cover depends on aspects of your health and lifestyle. With life insurance, you can use the tax-free lump sum payment to clear your debts (such as a mortgage, loan, or credit cards). The money will also mean that your family can gain a regular income to keep them in the life they are used to when you were alive.

The Best Life Insurance For You...

Provides a tax-free lump sum of money to your loved ones when you pass away.
You can choose to get protection over a set number of years (Term Life Insurance) or opt for a Whole of Life policy.
Your premium payments will be paid every month, and you can choose a policy based on what you can afford
At Polly, we search the whole of the UK life insurance market to find you an affordable plan that's tailored to your needs.
You can get free and hassle-free life cover quotes today
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What are the types of life insurance cover?

There are many types of life insurance cover you can choose to protect your finances; these include:

Level term life insurance
Whole of Life insurance
Decreasing term / mortgage protection insurance / payment protection insurance
Joint life insurance
Family Income Protection
Critical illness insurance (life insurance and critical illness cover can also be bought as one policy package)
Income Protection Insurance
Over 50s Life Insurance (a type of no medical life insurance to cover funeral costs and cash gifts for loved ones)

Do I really need Life insurance?

You do not legally have to have a life insurance policy in place, but if you have people that rely on your income (such as a child or a partner) then it's highly recommended you have a financial safety net. Consider if you have the following to help you decide:

You have a mortgage
You have outstanding debts such as unsecured loans, credit cards, car finance payments
If you would like to cover the cost of your funeral and not pace the financial burden of this on your loved ones
If you are a stay-at-home parent and your partner would need to pay for nursery or childcare costs in the event of your death
If you are single and you have a major asset, like a property, that you could be passed onto a loved one in your will. The money could be used to cover the cost of putting that property on the market, if they wished to sell it after you’re gone

What does life insurance cover?

Life insurance can provide payments towards your living expenses and debts in the event of your death or if you are unable to continue working (see life and critical illness cover for more information).

A lump sum of money or a regular source of income (see family income benefits for more information). The payments help provide for your family and list of will beneficiaries after you're gone.

Money to help you cover specific things, such as the cost of your funeral expenses

How much does life insurance cost?

Life insurance is a complex product that uses a number of factors to determine how 'at risk' you are from dying during the proposed length of your policy. Things like your general health, lifestyle (such as if you smoke or take part in high-risk hobbies like mountaineering) will be taken into account when making a life insurance application and how much you will pay towards your premiums.

Whole of Life Insurance

When most people think about life insurance, they picture this type of policy. A whole life insurance policy covers you until you die. There is no set term limit and the tax-free lump sum will be paid out to your loved ones at the end of your life, provided you have kept up with your premium payments. Often Whole of life policies can be linked to your investment reserve at the beginning of your policy. This can help you subsidize the premium payments you will need to make as you get into retirement and stop earning an income from work. You can also use your Whole of Life Policy to pay off any inheritance tax bill in advance if needed.

Key features of Whole of Life Insurance

Provided you keep up your monthly payments, this policy will pay put upon your death, whenever that may be.
Your inheritance tax bill is sorted in advance with this type of policy, this prevents delay in getting the payout to your loved ones when you die
This policy can be reviewed at intervals of say, 10 years. If your investment hasn’t grown in this time you may be able to cash out the investment proportion of your policy and close down the cover. You can also choose to keep the policy going and pay more towards premiums as you age.
You can also choose to fix your policy payments and opt out of the investment proportion of your plan, these are called Non-profit Whole of life policies
If you choose an investment, for-profit whole of life policy, if your investments perform well you may be able to add a bonus to the sum assured at the end of the policy. However, profits are not guaranteed.

Level term insurance

This is designed to protect you over a set terms (such as 10 or 20 years). If you pass away during this term the moment will be paid as a cash lump sum to your will beneficiaries. If you do not die in the length of the term this money is not refunded. This firm of level term assurance can be an affordable option for many.

You can pay for this policy in the form of monthly premiums. However, if you die after the level term is finished you will not receive a payout or have the money paid in refunded.

Key Features of Term Life Level Term Insurance

Can work out cheaper in premium payments, than other forms of insurance such as Whole of Life.
You decide the amount you need paid pout upon your death
You get cover fast – if you pass away within 6 months of opening a policy and you sadly die, you can get the whole sum of the policy paid out, provided you kept up with your premiums and the outcome of your claim is approved by your insurance provider.
Premium payments are fixed at the time you take out the policy. Therefore, the younger and healthier you are when you take out cover, the cheaper your premiums could be.

Decreasing Term Life/ Mortgage Life Insurance

A decreasing term life insurance policy can be an affordable option for mums to ensure that they can get their major mortgage debts cleared should they pass away unexpectedly. Unlike level term life insurance, these types of policies are designed to payout a lower lump-sum as your term progresses. The money is also exclusively earmarked to cover your mortgage, rather than offering a payout you can leave to your will beneficiaries. Also, like with term life insurance, your premium payments can be fixed at the time you apply.

Key features of Decreasing Term Life Insurance

Your mortgage is paid in the event of your death if you pass away during the policy term
Premium costs may be a cheaper option for those who are looking to ensure their major dents are paid off.
It may not be suitable to take out a policy if you have a specific type of mortgage, such as an interest only mortgage. Please speak to an advisor for more information on your policy option.

Joint Life Insurance

If you have a spouse or long-term partner, getting a joint life insurance policy may be an affordable option for you. With a joint life insurance plan, your premium payments go towards protecting both of you for the length of the policy term. The full lump-sum payment is made when the first person named in the policy dies, not both parties. You can, however, find a plan that will offer a payout after the second person named in the policy passes away. This may be a good option for those who are planning their inheritance. Please note, these types of policies offer one lump-sum payout only. If you need extra coverage, after the end of a joint term policy, you may want to look to taking out a new plan

Key Features of Joint Life Cover

Joint policies can be an affordable option for couples looking for more manageable monthly premium payments
You only have to fill in the paperwork once and you are both covered. This can be a convenient option for some
If you divorce or the relationship breaks down, in some cases the policy can be split into single life insurance policies.
Be sure to check that each partner has the right amount of cover they need for their specific circumstances.

Over 50s Life Insurance

Specialist life insurance policies may be a great option for those over the age of 50 who may have already cleared their mortgage and debts and would just like to make sure they leave some money behind for their loved ones to help them cover the cost of their funeral. An over 50s life insurance policy is often cheaper than taking out a term life policy, as the amount paid out when the policy ends is smaller. Many providers will not require a medical exam to sign up and your premium payments are also fixed for the entirety of the term (in many cases, the policy will pay out up until the age of 80 years old).

Key features of Over 50s life insurance

This is an affordable fixed price option for people approaching retirement age. The full amount payout is also guaranteed after a fixed time period (such as one year of making payments). If you pass away within the first year of taking out a policy, the money you have paid in may be refunded to your loved ones.
Due to inflation, the value of the policy may decrease over time. For instance, if you take a policy out at 50 to cover an £8,000 funeral, in time, the basic costs for the arrangements may increase and your loved ones may need to cover any extra costs towards it.
This type of plan works as a guaranteed acceptance life insurance plan with no medical required.
It is possible that you can pay in more than what is paid out at the end of the policy

Frequently Asked Questions

How does coronavirus affect my life insurance policy?

It is important to note that, like many aspects of life over the last year, regulations and measures continuously change and develop. Therefore, the points in this article are provided for informational use only, and, in many cases, it may be best to check the latest information with an independent financial advisor.

How has the pandemic impacted taking out life insurance?

Life insurers across the country are taking on new customers every day. In nearly all instances, insurers have added just a few further coronavirus-related questions to their sign-up processes. However, it is also worth noting that some insurers may have introduced new stipulations in some areas due to the pandemic. For example, new applicants who have tested positive within the last 30 days may postpone their application for a set amount of time. Please ask an independent expert and check the policy terms and conditions for more details.

If I am a new life insurance customer, will a policy still payout if I die from coronavirus?

At the moment, there are no exclusions on life insurance payouts if you die as a result of contracting coronavirus, provided you answered all questions truthfully at the time you apply.

If I have an existing life insurance policy, will it still payout if I die from coronavirus?

Yes. Currently, no UK life insurance providers have stipulated that they will exclude customers who tragically die from contracting coronavirus. Please note, the above applies if you have answered the rest of the questions truthfully when making your original application.

If I have tested positive for coronavirus, will this affect my taking out a new policy?

As mentioned previously, you will still be able to take out a new insurance plan in the wake of this pandemic. However, suppose you have tested positive within the last 30 days. In that case, you will be asked further questions about your diagnosis, and your application may be postponed for anything from two weeks to three months, depending on your insurer.

If I have self-isolated or been in close contact with someone who has tested positive for the virus, will my life cover be affected?

If you have shown symptoms, your new life insurance application may be postponed. Likewise, if you are a key worker, you may need to search for an insurer that will be more receptive to your position. It's also possible that some insurers may ask for a medical exam or letters from a medical consultant to move your application forward.

If I have lost my job due to the measures and I am having trouble paying premiums, will I risk losing my policy?

Under guidance from the UK's financial conduct authority, insurers should offer help to those facing difficult financial circumstances in the pandemic. In this case, please contact your insurer or advisor. In some cases, you may be able to apply for a three-month deferral on premium payments. Or, you may be able to lower your coverage and payments for a set amount of time.

Does my employer's life insurance cover me?

Death in service benefits features in many employment contracts and refers to a lump-sum payment that may be released should you pass away while employed at a company. This does not mean that you will get the payout if you die at work due to your occupation. This type of family life insurance is an employee perk that can help your loved ones if you die of a range of specific causes while you are employed within a company. In some cases, this plan is tied to your employee pension, or some of the best life insurance companies in the UK will offer direct payment to your loved ones upon your death. This is an excellent benefit for employees; however, it may not provide you with enough protection for your finances. As with all employee benefits, if you lose your job or are made redundant, you may not be covered by death in service benefit. You, therefore, may wish to take out an additional life insurance policy to ensure that your loved ones are protected regardless of where you work.

Can you have more than one life insurance policy?

Yes. It is possible to buy one or more life insurance products if you feel like you need more cover or a different type of cover (such as income protection or critical illness insurance)