How long should a life insurance policy last?

Choose a term that matches your key financial commitments: for example, until your mortgage is paid off or your children are financially independent. Whole-of-life policies last for your entire lifetime.

How do you calculate how much life insurance you should have?

Begin by adding up your debts, mortgage, and living costs, then subtract savings or existing cover.

What’s the difference between whole life and term life insurance?

Term life covers you for a set period and only pays out if you die during that time. Whole-of-life cover lasts for life and will payout whenever you die.

What is the best age to get life insurance?

The earlier you take out cover, the lower your premiums are likely to be. Many people buy life insurance when they take on major financial responsibilities, such as a mortgage or children.

Can you have multiple life insurance policies?

Yes. You can hold several policies to cover different needs, such as one for your mortgage and another to support your family. Just ensure your total cover remains affordable and appropriate.

Guide to choosing a life insurance policy

Life can be unpredictable, but the financial security of your loved ones doesn’t have to be. A well-chosen life insurance policy can give you and your family peace of mind by ensuring that, if you were to die unexpectedly, your dependents are more likely to be protected from financial hardship.

4.11.25

By Alan Boswell Group

Whether you’re buying your first home, starting a family, or thinking ahead to later life, this guide will help you understand the different types of life insurance available, how they work, and how to decide which policy is right for you.

What is life insurance?

Life insurance is a type of policy that pays out to your loved ones when you die, helping them cover essential costs. A policy might be used to cover remaining mortgage payments, or household bills, living expenses, school fees and more. Depending on the type of life insurance you take out, your beneficiaries will either receive a lump-sum payment or a regular income.

It’s worth noting that personal life insurance is separate from any cover you might have through employment, such as group life insurance (also known as death in service insurance). Employer-provided benefits can be valuable, but they may not offer sufficient cover – especially if you change jobs, retire, or become self-employed.

Why take out a life insurance policy?

Life insurance gives you peace of mind that, if the worst happened, your loved ones are more likely to be financially protected. A payout can make an enormous difference at a time of emotional and financial upheaval, giving your family much needed stability and security.

People choose to take out life insurance for a range of possible eventualities, including:

To pay off a mortgage
A mortgage is often a family’s largest financial commitment. If you die before it’s paid off, life insurance can make sure your family can stay in your home without the added worry of meeting monthly repayments.
To cover day-to-day living costs
Losing an income can put a lot of pressure on a household. A life insurance payout can help your family maintain their standard of living, avoiding financial stress at an already difficult time.
To fund children’s education and university fees
If you were to die before your children finish full-time education, life insurance could help cover school fees, university tuition, and other education-related expenses, ensuring your children can continue their studies with minimal disruption.
To help with funeral and final expenses
Funerals can be surprisingly costly, and many families aren’t prepared for the sudden expense. A life insurance payout can cover the cost of a funeral and other final arrangements, easing the financial burden on your loved ones during an already difficult time.
To cover IHT liability
Life insurance can be used to cover the cost of Inheritance Tax due from your beneficiaries when you pass away.

What types of life insurance are available?

There are three main types of life insurance:

Level term life insurance
Decreasing term life insurance
Whole-of-life insurance

Level term life insurance

A level term life insurance policy provides cover for a pre-agreed period. Premiums and the level of cover remain the same throughout the term (although some plans include the option to increase cover during the term).

The premiums you pay are based on factors such as:

The amount of cover
Length of policy term
Age, health, and family medical history
Lifestyle and occupation

Reasons for taking out a level term life insurance policy might include:

Ensuring that a child or children can continue to attend a fee-paying school.
Providing childcare so a widowed spouse can continue to work.
Covering the bereaved family’s day-to-day living costs.
Ensuring that a mortgage or other debt can be paid.

If you outlive the term of your policy, there is no cash value or payout, and the policy ends.

Decreasing term life insurance

This type of policy also runs for a fixed term, but the amount of cover gradually reduces over time. It’s designed to align with the repayment of a mortgage or loan, so that if you die before the end of the term, the payout covers the remaining balance.

Because the payout amount decreases, premiums are usually lower than for level term cover. Decreasing term policies are sometimes called mortgage protection insurance.

Whole-of-life insurance

Whole-of-life policies guarantee a payout whenever you die, provided you’ve kept up with your premium payments. As a payout is assured, premiums tend to be higher than for term insurance.

The younger and healthier you are when you take out the policy, the lower your premiums are likely to be. Whole-of-life cover can be useful if you want to:

Leave a financial gift or inheritance
Cover funeral costs
Help pay potential inheritance tax liabilities

Life insurance policies written in trust

Life insurance payouts form part of a policyholder’s estate, and any assets over the value of £325,000 may be subject to inheritance tax at a rate of 40%. (The amount you can leave tax-free depends on variables such as your marital status and charitable giving. You can find out more here. Please note, the rules relating to inheritance tax could potentially change in the future).

By placing a life insurance policy in trust, ownership of the policy is transferred from you (the settlor) to trustees, who hold and manage it on behalf of your chosen beneficiaries. This means:

The payout can usually be made directly to your beneficiaries without waiting for probate.
The money is typically excluded from your estate, which can help reduce or avoid inheritance tax.

However, setting up a trust must be done correctly. You’ll need to choose the right type of trust, complete the appropriate documentation and formally assign the policy. It’s strongly recommended that you seek professional advice before doing so.

Life insurance with terminal illness or critical illness cover

When you take out a life insurance policy, it may include terminal illness cover. This allows you to take your payment, or a portion of it, on diagnosis of a terminal illness (as defined by the insurer).

You can also take out critical illness cover for an additional premium. This provides a lump-sum payment on diagnosis of a serious medical condition listed in your policy. Commonly covered conditions include cancer, heart attack, stroke, multiple sclerosis, Parkinson’s disease, and major organ failure. Always check the policy wording carefully, as the list of qualifying illnesses and definitions varies between insurers.

What considerations do you need to take into account when choosing life insurance?

When choosing life insurance, you first need to establish your main reason for taking out a policy. For example:

Do you want to ensure that your family aren’t left with the burden of a mortgage?
Do you have other debts you’d want to clear?
Are you the main income earner and want to provide money to cover living costs?
Do you want to provide a financial gift to your loved ones?
Do you want to be able to take a payout if you’re diagnosed with a critical illness?
Is there likely to be an inheritance tax liability on your estate that you want to cover?

You should also think carefully about affordability and flexibility:

Budget. Choose a policy that you’re confident you can maintain the payment of. If you stop paying premiums, the policy may lapse, and you’ll lose your cover.
Type of cover. Decreasing term cover tends to be the most affordable, but it is designed mainly for debt repayment rather than income replacement.
Review regularly. Revisit your policy after major life events – such as paying off a mortgage, changing jobs, or having a child – to ensure your cover still meets your needs.
Employer benefits. Your employer may offer death-in-service (group life insurance) cover. This is a valuable benefit but it may not be appropriate for it to replace personal life insurance.

How much life insurance cover do you need?

The amount of life insurance cover you need will depend on your personal circumstances. When deciding on a policy, you might want to consider the following:

Outstanding debts. Include your mortgage, personal loans, and credit cards.
Household income. How much money your dependants would need to maintain their standard of living.
Future costs. Think about childcare, education, and potential university fees.
Existing savings or benefits. Deduct any savings, investments, or employer-provided cover you already have.

Everyone’s situation is different. Speaking to a financial adviser at Alan Boswell Group can help you calculate a figure that’s tailored to your needs.

How much does life insurance cost?

Life insurance premiums vary depending on:

Your age. Younger people generally pay less, as they present a lower risk.
Health and lifestyle. Factors such as smoking, weight, and medical history can affect your premium.
Occupation. Jobs involving higher risk can lead to higher premiums.
Cover amount and term length. The higher the payout or longer the term, the more you’ll pay.
Type of policy. Whole-of-life cover typically costs more than level-term or decreasing-term insurance.

Many insurers offer flexible plans, allowing you to adjust your cover as your life changes – such as after marriage, buying a home, or having children. Comparing quotes and seeking professional advice can help you find a balance between affordability and adequate protection.

Helping you to choose the right life insurance for you

Choosing life insurance is an important step towards protecting the people who matter most to you. The right policy can provide long-term financial security for your loved ones, helping them manage living costs, repay debts, or maintain their home if you are no longer there to provide for them.

Because everyone’s circumstances are different, there’s no one-size-fits-all approach. The amount of cover you need, the type of policy that suits you best, and whether to include additional options like critical illness cover, will all depend on your personal situation, priorities, and budget.

Speaking with a financial adviser at Alan Boswell Group can help you choose a policy that meets your family’s needs and keeps pace with life’s changes. To learn more, talk to our team today on 01603 967967.

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Guide to choosing a life insurance policy

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In this article

What is life insurance?

Why take out a life insurance policy?