Life insurance

The cheapest cover per pound of benefit, and the one most people already have in the wrong shape.

Life insurance pays out when you die. That's the whole product, and its simplicity is why it's cheap — for a healthy person in their thirties, meaningful cover often costs less than a phone contract.

The questions worth thinking about are how much, for how long, in what shape, and who receives it.

The types

Level term. A fixed amount for a fixed period. Die within the term and it pays the full sum. Outlive it and it pays nothing, which is the point — you were buying cover for a period of need, not an investment.

Decreasing term. The sum reduces over time, usually roughly tracking a repayment mortgage. Cheaper than level term. Often sold alongside a mortgage, which is why so many people have it.

Family income benefit. Instead of a lump sum, it pays a regular monthly income for the remainder of the term. Underrated and often the better answer for young families — a surviving partner suddenly handed a large lump sum while grieving has to decide what to do with it, whereas a monthly income replaces what was actually lost. It's usually cheaper than equivalent level term too.

Whole of life. Pays whenever you die, with no end date. More expensive, because a claim is certain rather than possible. Its main use is estate planning — a policy in trust designed to pay an expected inheritance tax bill — rather than family protection. Covered in the Inheritance and estate planning topic.

Over-50s plans advertised on daytime television are a small whole-of-life product with guaranteed acceptance. They're expensive per pound of cover, and you can pay in more than the payout if you live long enough. Occasionally right for someone uninsurable otherwise; usually poor value.

How much

Start from what the money has to do:

Clear the mortgage, so the household isn't forced to move
Clear other debts
Replace lost income for as long as it's needed — typically until the youngest child is independent
Cover the cost of what you did unpaid. This is the one people forget. A partner who dies may have provided childcare, school runs and household management that now has to be paid for.

Then subtract what already exists: death in service cover, savings, and any existing policies.

Round up rather than down. The gap between adequate and generous is usually a small monthly amount, and cover is priced on your age today.

Two policies or one

Couples are commonly sold a joint life first death policy — one policy, pays once, on the first death.

Two single policies often work better, for a modest extra cost:

They pay twice if both die, which a joint policy doesn't
Each person keeps their own cover if the relationship ends, rather than untangling one policy
Each can be written in trust separately, with different beneficiaries
One person's poor health doesn't inflate the other's premium

Joint life is cheaper and simpler, and there are situations where it's right. But it's chosen by default far more often than it's chosen deliberately.

How long

Match the term to the need. A mortgage term for mortgage cover. Until the youngest child finishes education for family cover. Both, if they differ, which usually means two policies rather than compromising on one.

Buying a longer term than you need costs more. Buying a shorter one and finding you still need cover at the end — at an older age, possibly with a health history — is worse. If in doubt, longer.

Put it in trust

A life policy not written in trust generally pays into your estate. Which means it may be delayed by probate for months, may be counted for inheritance tax, and may be exposed to creditors.

Writing it in trust usually fixes all three, costs nothing, and takes one form. It's covered properly in Putting policies in trust, and it's the most commonly skipped free win in personal finance.

Mortgage life cover

If you have a mortgage and dependants, you almost certainly need life cover. What you don't need is to buy it from your lender without comparing.

Cover bought alongside a mortgage is frequently decreasing term matched to the loan, which is fine as far as it goes, but it insures the debt rather than the family. A household losing an earner needs the mortgage cleared and an income. Decreasing term alone does the first.

If your health isn't perfect

Cover is still usually available. Insurers may apply a higher premium, exclude a specific condition, or postpone a decision — but outright refusal is less common than people assume, and terms vary substantially between insurers, which is why using a broker matters more the more complicated your health is.

Do not be tempted to leave anything off the application. That's covered in Buying protection, and it's the single biggest reason claims fail.

This article is for general education only and isn't personal advice or a recommendation of any product.