- Level term life cover is the cheapest and suits most families.
- Buy the cover you need for the years you need it — not more.
- Check what your employer already provides before buying anything.
Protection insurance is sold badly and bought reluctantly, which is a poor combination. The useful questions are narrow: who would suffer financially if you died or could not work, how much would they need, and for how long.
This is general information, not personal financial advice. Protection needs are genuinely individual, and a regulated adviser can assess yours properly — many charge nothing to the customer, being paid by commission.
Start with what you already have
People routinely buy cover they already hold.
- Death in service through your employer’s pension scheme, frequently a multiple of salary. Check the multiple — it is often substantial.
- Employer sick pay, and for how long. This determines how much income protection you need and after what waiting period.
- Existing policies taken out with an old mortgage and forgotten.
- Cover bundled with a packaged bank account.
Also check whether any existing policy is written in trust — more on that below.
The main types
Level term life insurance
Pays a fixed lump sum if you die within the term. Cheapest and most straightforward. Suits families who want a sum to replace income, cover childcare, or clear debts.
Decreasing term
The payout falls over time, roughly tracking a repayment mortgage. Cheaper than level term, and designed to clear the mortgage. Fine if that is the only need — but it leaves nothing for living costs.
Family income benefit
Pays a regular monthly income to your dependants rather than a lump sum, for the remainder of the term. Often cheaper than level term and arguably more useful — a monthly amount is easier for a grieving family to manage than a large sum.
Whole of life
Pays out whenever you die. Much more expensive, and generally only needed for specific purposes such as inheritance tax planning. Most families do not need it.
Income protection
Pays a proportion of your income if illness or injury stops you working, usually until you recover, retire, or the term ends. This is the cover most people are missing and most likely to need — being unable to work is far more probable than dying young.
Check the deferred period (how long before it pays), whether it is “own occupation” (pays if you cannot do your job, rather than any job), and whether it pays to the end of the term or for a limited period.
Critical illness cover
Pays a lump sum on diagnosis of a listed condition. Useful, but read what is actually covered and to what severity — definitions matter enormously and vary between insurers. Frequently sold alongside life cover.
How much and how long
A workable approach:
- Add up what would need clearing — mortgage and other debts.
- Add the annual amount your household would need to live on, multiplied by the years until your youngest is financially independent.
- Subtract existing cover and savings.
- Set the term to the point at which dependants no longer depend on you, or the mortgage ends.
Do not over-insure. Cover you do not need is money leaving your account every month for decades.
Write it in trust
This is free, frequently skipped, and genuinely important. Putting a life policy in trust means the payout goes directly to the beneficiaries rather than forming part of your estate.
The effects: it usually pays out faster, avoids probate delays, and generally falls outside your estate for inheritance tax. Insurers provide the forms at no cost. Ask.
Buying it
- Answer every medical question honestly and fully. Non-disclosure is the main reason claims are refused, and a refused claim leaves your family with nothing.
- Buy young if you are going to buy. Premiums rise with age and health changes.
- Compare, but check the definitions, especially for critical illness — the cheapest policy may cover far less.
- Beware cover with no medical questions advertised heavily to older people. It is usually poor value with limited payouts.
- Review after major life events — a child, a move, a new mortgage, a divorce.
What to skip
Mortgage payment protection and similar add-ons sold at point of sale are often expensive for what they cover. Check whether proper income protection would serve you better for a similar cost.
