Life insurance

What is level-term life insurance?

Level-term life insurance is the easiest way to protect the ones you love, financially, in case you die. It's a simple policy that pays a fixed lump sum if you die within a set period. For example, a typical policy might cover £300,000 for 21 years. But if you die even one day after the set date, it won't pay out a penny. It's something that we hope you will get, that you will never need.

Do I need level-term life insurance? When should I get it?

Level-term life insurance is worth getting if you have someone who depends on you financially, for example, children, a partner, a family member or a friend. It's cheaper the younger you get it, so if you have dependants and you can afford it, don't wait (unless you're about to quit smoking or vaping, or are about to change to a less risky job – as it'll be cheaper).

If you don't currently have any dependants but think you might in the future (you hope to have kids), then it could be worth taking out a policy now – while you're younger – to lock in at a cheaper price. See Should I get level-term life insurance when I'm young?

What does level-term life insurance cover?

Policies obviously cover death and many pay out for terminal illness. But they typically won't pay out if someone takes their own life in the first 12 to 24 months of taking out a policy. In practice, there's usually very little dispute over whether or not someone is dead, so when it comes to buying a policy, so long as the provider is reputable, it's usually just a case of going for the cheapest.

See below for other types of life insurance that could be more suitable for your circumstances, including cover linked to your mortgage, or lifetime cover.

How much cover do I need? And how long for?

You need to work out how much you want your dependants to have so that they're financially secure when you're gone. The first step is to check if you've existing cover with an employer or mortgage. If you do, you'd need less cover on your level-term life insurance policy.

• Cover via your employer ('death in service'). This pays out a multiple of your salary, usually three or four times, while you're an employee of that company. But remember that you could change or lose your job, so you may decide not to factor this in.

• Cover taken out to cover your mortgage. It’s not normally compulsory, but some mortgage lenders may make it a condition of a particular deal. This gives them reassurance that the loan could still be repaid if you died. If you already have a separate policy designed to repay the mortgage, you don't need to factor your mortgage debt into your level-term life insurance cover.

After you've considered both of these, the rough rule of thumb is to take out enough level-term life insurance, so that in total you...

Cover roughly 10 times the highest earner's annual income

• Any outstanding debts, including a mortgage if you don't have a separate policy.

• Immediate outgoings your dependants would need to pay.

• Future spending you would have wanted to make, such as your kids' university costs.

• Any additional expenses a death may trigger, such as funeral costs.

While 10 times your income may seem high, inflation means the value of any pay-out will be less in, say, 10 years' time than it is now, and your cover will likely last at least that long.

Cover should last until nobody is financially dependent on you

This depends on who you're protecting:

• A policy covering children should last until they are no longer financially reliant on you. For many that's generally at least until they finish full-time education at 21. If you're planning on having more children you may want to estimate when that'd be, rather than trying to extend or get a new policy later, as cover gets more expensive the older you get.

• Cover for a partner should last until you expect to reach pensionable age. If you die after taking your pension, you can usually make arrangements so that your partner benefits from (at least some of) your remaining pension.

Don't feel obliged to cover a round number of years – 17, 22 or 27 years are all fine.

Should I get a joint or single life insurance policy?

For the same level of cover, a joint policy is cheaper than two single policies, but there will only be one pay-out, usually on the first death. Two single policies cost more, but they pay out twice if both policyholders die separately.

The table below shows how much it'd cost for a few different scenarios, to help you compare:

This is an important decision and will depend on your circumstances. Key things to consider:

• If one of you died, would your financial circumstances change? For example, would you lose an income? Would the other person have to stop working to look after children?

• Would you need a higher pay-out depending on which of you died? For example, does one person earn significantly more than the other?

• If you both died, would one pay-out be enough to give your dependants financial security? And would it be a different figure compared to if just one of you died?

Another thing to consider with a joint policy is that if you split with your partner, you may have to cancel the cover (unless you're still on good terms) and buy a new policy (or policies), priced on your new age and health, which would likely be more expensive.

What are the biggest factors that affect the price?

The more cover you get and the longer the term, the more it'll cost. But old age, poor health, being a smoker, and even having a risky job will all increase how much you'll pay, too...

• Non-smokers pay much less than smokers. As they're less likely to die during the term. This is also true for vaping (which contains nicotine). To count as a non-smoker or non-vaper, you need to have been nicotine-free for at least a year, or in some cases five years. If you have (or are about to) quit, wait before getting cover – it'll be much cheaper.
  
  You don't need to prove anything when buying a policy, though you do need to declare nicotine patches, if you use them. But don't lie, as if you die and it's discovered you had been a smoker or vaper, it'll invalidate the policy. If you are serious about giving up, get it noted on your medical records to back up any potential claim.

• The younger you buy level-term life insurance, the cheaper it is. But it's not as simple as you might think...
  

  Should I get level-term life insurance when I'm young?

  Martin answered this on his recent podcast. Let's say you're a 25-year-old couple with no kids considering £200,000 of cover that lasts till you're 65:

  • At 25 you'd pay £10 a month for 40 years – in total that's £4,800

  • At 35 you'd pay £14.80 a month for 30 years – in total that's £5,400

  • At 45 you'd pay £25.30 a month for 20 years – in total that's £6,100

  It's far cheaper to get it now, even if you've no immediate need for it. But while £200,000 now may cover 10 times your salary, it's unlikely to in, say, 10 or 20 years time, and it'll have much less purchasing power then too. So down the line you'll likely want more cover than you'd take out now. Factor this in.

  So the question is: how much are you prepared to pay right now for future protection, should the worst happen? Then when you're older and you might have a mortgage and dependants and DO need level-term life insurance, you've already got a decent whack in place at a cheap price, which could be helpful.

  If you stop paying, you lose the cover. And it's the later years which are the most important. So you're committing to the full term if you do take it out early.

• Your health and medical history matter – always declare all medical conditions. If you don't, it'll invalidate your policy. You must declare mental health conditions too, eg, if you suffer (or have suffered) from anxiety or depression, or have taken any medication to help you cope. Full info in Life insurance if you've a pre-existing medical condition.

'Guaranteed premiums' keep your monthly costs fixed

A premium is literally just the amount you'll pay each month for an insurance policy. When buying life insurance, you'll usually be given two choices of monthly payment:

• Guaranteed premiums – your monthly price stays the same for the whole policy.

• Reviewable premiums – often cheaper at first, but the insurer can hike the price later, so a cheap deal now may prove costly in the long run.

It's usually best to choose 'guaranteed premiums' because they stay fixed and are often cheaper over the full term.

How do I buy level-term life insurance as cheaply as possible?

The worst way to get level-term insurance is by going straight to a bank or insurer, here you pay full price and don't check whether it's the cheapest on the market. Many people use regular comparison sites, which scour the market to find you the cheapest deal, but they don't offer any advice yet still take a huge whack of commission. Instead, you can slash costs by using specialist brokers. Two types:

• Execution-only (non-advised) discount brokers: By far the cheapest option. They don't give advice, so you need to know what cover you want. They charge a small fee (typically £25) but rebate all the commission from the insurers into your policy (so you basically get a discount, hence the name). You can save £1,000s over the life of a policy. It's an easy win.

• Advised brokers: If you're confused, unsure of what you're doing or have complex medical circumstances, then forget the very cheapest and get independent advice from an advisory broker. Yet doing this means a broker will take some commission and you'll therefore pay more. But that's far better than getting it wrong.

The table below compares the different ways you can buy level-term life insurance – and clearly shows how it's considerably cheaper to buy via specialist brokers.

Cheapest execution-only brokers – if you know what you want

These are by far the cheapest option, but you need to know what cover you want. Three key things to consider:

1. Make sure you've decided the amount of cover and policy term that's right for you.

2. Whether you want a single or joint policy.

3. Opt to have your policy written in trust, and make sure you understand who the trustees and beneficiaries will be.

Below are the brokers we've found to be the cheapest, and have decent feedback. All charge a one-off £25 broker fee. We'd suggest trying as many as you have time for.

• Cavendish Online

• Moneyworld

• Money Minder

An execution-only broker can provide information and arrange a policy, but it will not recommend which option is right for you.

Important. If you call any of these companies before you buy, make sure you're clear on whether you're getting 'advice' or 'information'. If they're advising you, or pushing you towards one policy over another, they need to do a full check on your financial and medical circumstances and insurance needs, so it'll cost more. Do ask if you're not sure.

Cheapest advised brokers – if you need help choosing

When we researched these brokers, no single one was consistently cheapest for all scenarios, so get quotes from several. We’ve listed them in order of the highest voucher or cashback, based on premiums of around £30/month. But don't see that as a set order in which to try them, as different brokers were cheapest for different scenarios.

And remember: don’t be swayed by vouchers alone. If a broker offering a £100 voucher charges even £1/month more than another, that’s £300 extra over a 25-year term.

Struggling to find cover? Still unsure?

If the firms above weren't able to help, or you'd rather find someone local to where you live, head to the British Insurance Brokers Association and use their 'Find insurance' search. Make sure to select 'Life insurance' when it asks what you'd like to insure.

Alternatively, you can speak to an independent financial adviser (IFA), who may be able to see how life insurance fits in with your wider circumstances. It's also a good idea if you'd prefer face-to-face advice, as most brokers are phone-based. Costs can vary depending on whether you pay fees or commission. For more and how to find an adviser, see our IFA guide.

Can you cut the cost of your existing policy?

You’re not tied to your existing life insurance. You can get a new, and hopefully cheaper, policy at any point. But never cancel an existing policy until the new one is fully in place, or you won't have any cover.

Whether or not you'll save largely depends on your age, how your circumstances have changed and when and how you bought your old policy. It’s particularly worth getting fresh quotes if:

• You originally bought your policy directly from an insurer or bank

• You've recently quit smoking or vaping

• You no longer have a risky job

How much you'll save will vary. The benefits from the above factors could be offset by the fact you're now older – and thus higher risk – which will drive up your cost. But it's well worth checking, the savings can be huge, as this success shows...

Other types of life insurance

This guide focuses on level-term life insurance as it’s the right option for most people. However, there are other types of cover that can make sense in more specific situations:

• Mortgage-term life insurance (decreasing-term). The pay-out reduces over time in line with your mortgage debt, and ends once it's fully repaid. It’s usually cheaper. Read more in our Mortgage life insurance guide.

• Family income benefit. After you die, the policy pays out a tax-free monthly income for the remainder of the term, rather than a fixed lump sum. It's complex, so consult a Financial adviser.

• Over-50s' life insurance. Frankly, we think most people should avoid this. It's an expensive policy that might cost you more than it ever pays out. See our Beware over 50's life insurance guide.

• Whole-of-life insurance. Usually to cover Inheritance Tax. It runs until you die, but is usually expensive and poor value for families who just need cover while they have dependants.

• Critical illness cover. Read our full Critical illness cover guide to see if it's worth it.

Life insurance FAQs