Life Insurance: A Plain-English Overview
Life insurance pays out a tax-free lump sum if you die during the policy term. It’s a separate product to private medical insurance (PMI), though many people consider both as part of an overall protection picture.
This page is informational. Insured Health is a UK PMI broker; we don’t currently advise on life insurance. We’ve written this so you can understand the basics before exploring further with a specialist.
Two main types
Term life insurance. Cover for a fixed period; typically 10-40 years. If you die during the term, the policy pays out. If you outlive it, it ends with no payment. Term insurance is the affordable choice for most people, especially when the goal is “make sure my mortgage and dependents are covered until the kids are grown”.
Within term insurance, there are sub-types:
- Level term; sum assured stays the same for the whole term
- Decreasing term; sum assured reduces over time, usually matching a repayment mortgage balance; cheaper than level term
- Family income benefit; pays a regular monthly amount instead of a lump sum
Whole-of-life insurance. Cover that pays out whenever you die, with no end date, provided premiums continue. Significantly more expensive because the insurer is committed to paying eventually. Often used for inheritance tax planning rather than family protection.
How life insurance differs from PMI
- PMI pays for private medical treatment while you’re alive
- Life insurance pays out on death
They’re entirely separate products solving entirely separate problems. Many people have both, sometimes alongside critical illness cover and income protection.
How it differs from critical illness cover
- Life insurance pays on death
- Critical illness pays on diagnosis of a serious illness
A common combined product, “life and critical illness” pays on whichever happens first, but only once. It’s usually slightly cheaper than buying both separately.
What life insurance is typically used for
Three common purposes:
- Mortgage protection. A decreasing-term policy matching mortgage balance. If you die during the term, the policy clears the mortgage so dependents aren’t displaced.
- Family income protection. A level-term or family income benefit policy that supports dependents until children are independent.
- Inheritance tax planning. Whole-of-life cover written in trust to fund any IHT liability on death without depleting the estate.
Cost
Life insurance is one of the cheapest insurance products on the market for healthy adults. A non-smoking 35-year-old might pay £8-£15 a month for £200,000 of level term cover over 25 years. The same person at 55 might pay £40-£70 a month for the same cover.
Add critical illness to the same policy and the premium typically increases significantly; sometimes doubling or more. This isn’t a deal-breaker; it just reflects that critical illness is more likely to trigger than death within working age.
Writing in trust
A widely overlooked point: life insurance proceeds can fall inside the deceased’s estate for inheritance tax purposes if the policy isn’t written in trust. Writing the policy in trust at outset (it’s free and takes minutes) keeps the payout outside the estate and gets the money to beneficiaries faster; usually weeks rather than months.
This is one of those things where five minutes of paperwork at the start saves significant time and tax later. Worth asking any broker who arranges life cover for you.
Underwriting
Life insurance underwriting is generally simpler than critical illness, but still asks about:
- Medical history and current conditions
- Family medical history
- Smoker status, height, weight
- Alcohol consumption
- Occupation and hazardous activities
Most healthy applicants get standard rates. Significant medical history can lead to loadings or, in rare cases; declinature.
A note on what we offer
Insured Health specialises in private medical insurance. We don’t currently advise on life insurance, but we’re happy to talk through how it fits alongside PMI in your overall protection picture. A specialist protection broker or independent financial adviser can quote the life insurance market and arrange cover written in trust.
Frequently asked questions
Do I need life insurance if I have private health insurance? They cover entirely different things. PMI pays for treatment while alive; life insurance pays out on death. Whether you need life cover depends on dependents and debts, not on whether you have PMI.
Is life insurance cheaper if I’m young and healthy? Yes; significantly so. Premiums roughly double every 10-15 years of age. Smoker status alone often doubles a premium too.
Should life insurance be written in trust? Usually yes, especially for family protection. It keeps the payout outside the estate for inheritance tax purposes and gets the money to beneficiaries faster.
What’s the difference between life insurance and life assurance? Historically, “life insurance” referred to term cover (might or might not pay out) and “life assurance” referred to whole-of-life (will eventually pay out). The terms are now used somewhat interchangeably.
For PMI questions, we’re at 0800 131 0400 or info@insuredhealth.co.uk. For life insurance, a specialist protection adviser is the right next step.
