Life Insurance UK The Complete Buyer’s Checklist

Life insurance is one of the most important financial products you may ever buy. It’s a cornerstone of financial planning, providing a vital safety net for your loved ones if the worst should happen. Yet, navigating the world of life insurance can feel overwhelming. With so many different policies, features, and providers, how do you know you're making the right choice?

This is where our complete buyer’s checklist comes in. As experts in the UK protection market, we’ve created this definitive guide to walk you through every critical step. We’ll demystify the jargon, break down your options, and empower you to choose a policy with confidence, ensuring your family’s future is secure.

Everything to check before taking out a life insurance policy

Taking out a life insurance policy is a significant decision. It's a promise you make to your loved ones. To ensure that promise is kept, it’s essential to be thorough. This checklist covers the 13 crucial areas you must consider before signing on the dotted line.

1. Understanding Your "Why": The Purpose of Your Policy

Before you look at any policy, ask yourself one fundamental question: Why do I need this cover? Your answer will shape every other decision you make. People typically buy life insurance for several key reasons:

• To cover a mortgage: This is the most common reason. A policy can pay off the outstanding mortgage on your family home, ensuring your loved ones don't have to worry about losing it. According to UK Finance, the outstanding value of all residential mortgage loans was £1.6 trillion at the end of 2023. Protecting this single biggest debt is paramount for most homeowners.
• To provide for your family: If you have children or a dependent partner, a life insurance payout can replace your lost income. It can cover everything from daily bills and childcare to future school and university fees. The Child Poverty Action Group estimated in 2023 that the basic cost of raising a child to age 18 in the UK is over £166,000 for a couple.
• To cover funeral costs: The average cost of a basic funeral in the UK has risen significantly. The SunLife Cost of Dying Report 2024 found the average cost of a funeral to be £4,141. A life insurance policy can prevent your family from facing this unexpected financial burden during a difficult time.
• To leave an inheritance: You might simply wish to leave a lump sum for your children or grandchildren to give them a financial head start in life.
• To cover Inheritance Tax (IHT): For larger estates, a Whole of Life policy can be used to pay a potential IHT bill, ensuring the full value of your estate is passed on to your beneficiaries.

Your "why" dictates the type of policy, the amount of cover, and the length of the term you'll need.

2. Choosing the Right Type of Life Insurance

Once you know your 'why', you can choose the right vehicle. There are several core types of life insurance in the UK, each designed for different needs.

• Level Term Assurance: This is the simplest form. You choose a lump sum (the 'sum assured') and a period (the 'term'). If you die within the term, the policy pays out the fixed lump sum. If you survive the term, the policy ends and there is no payout. It's ideal for covering an interest-only mortgage or providing a general family safety net.
• Decreasing Term Assurance (or Mortgage Protection): With this policy, the sum assured decreases over the term, broadly in line with a repayment mortgage. Because the potential payout reduces over time, premiums are typically cheaper than for level term cover. It's specifically designed to clear a repayment mortgage.
• Family Income Benefit: Instead of a single lump sum, this policy pays out a regular, tax-free income to your family for the remainder of the policy term if you die. This can be easier for a family to manage than a large lump sum and is excellent for replacing a lost salary to cover ongoing bills.
• Whole of Life Insurance: Unlike term insurance, this policy is guaranteed to pay out whenever you die, as long as you keep up with the premiums. It's more expensive but is often used for covering funeral costs or for Inheritance Tax planning.
• Gift Inter Vivos: This is a specialist type of term assurance. It's designed for clients who have gifted assets (like property or cash) and want to cover the potential Inheritance Tax liability if they die within seven years of making the gift.

Here’s a simple comparison:

3. Calculating How Much Cover You Really Need (The Sum Assured)

This is one of the most common questions we hear. It's easy to pluck a figure out of the air, but a more methodical approach ensures you're not under- or over-insured.

A simple formula to follow is:

(A) Your Debts + (B) Future Family Spending - (C) Your Existing Assets = Your Required Sum Assured

Let’s break that down:

• (A) Your Debts: Add up everything you owe. This includes your mortgage, car loans, credit card balances, and any other personal loans. The goal is to leave your family debt-free.
• (B) Future Family Spending: This is the biggest variable. Think about how much income your family would need to maintain their current lifestyle. Consider:
  • Monthly bills (utilities, council tax, food).
  • Childcare costs.
  • Future education costs (private school or university fees).
  • A buffer for emergencies.
• (C) Your Existing Assets: Now, subtract any financial resources your family could already access. This might include:
  • Savings and investments.
  • Any 'death-in-service' benefit from your employer (typically 3-4 times your annual salary).
  • Other existing life insurance policies.
  • Partner's income.

Example: Sarah is 35 with a £250,000 repayment mortgage, two young children, and no significant savings. Her employer provides a death-in-service benefit of £120,000. She wants to ensure the mortgage is paid and her family has £2,000 a month for the next 15 years until her youngest is independent.

• Mortgage: £250,000
• Family Income: £2,000/month x 12 months x 15 years = £360,000
• Total Need: £250,000 + £360,000 = £610,000
• Less Existing Cover: - £120,000 (Death in Service)
• Required Cover: £490,000

Sarah might choose a £250,000 decreasing term policy to cover the mortgage and a separate £240,000 level term policy or Family Income Benefit policy for her family's living costs.

4. Deciding on the Policy Term

The policy term is how long your cover lasts. It should be directly linked to your 'why'.

• For mortgage protection: The term should match the remaining term of your mortgage. If you have 23 years left on your mortgage, you need a 23-year term.
• For family protection: A common approach is to set the term to last until your youngest child is financially independent, for example, age 21 or 25.
• For covering your working life: You might set the term to align with your planned retirement age, for instance, 68.

Longer terms mean higher premiums because there's a greater chance the insurer will have to pay out. It's a balance between affordability and ensuring the cover lasts as long as you need it.

5. Single vs. Joint Policies: What's the Difference?

If you have a partner, you can choose between two single policies or one joint policy.

• Joint Life Policy: This covers two people but only pays out once, usually on the 'first death'. After the payout, the policy ends, leaving the surviving partner with no cover. They are often slightly cheaper than two single policies.
• Two Single Policies: Each partner has their own separate policy. If one partner dies, their policy pays out, and the surviving partner’s policy remains active. This provides more comprehensive protection, especially if you have children, as it could potentially pay out twice.

While joint policies seem simpler, the additional cost for two single policies is often small and provides far greater long-term security.

6. The Importance of Honesty: Your Application and Disclosures

This is non-negotiable. When you apply for life insurance, you are entering into a contract based on 'utmost good faith'. You must be completely honest and accurate in answering all questions about your:

• Medical History: Any past or present conditions, treatments, and medications.
• Family Medical History: Certain hereditary conditions in close relatives (parents, siblings).
• Lifestyle: Your smoking and vaping status, alcohol consumption (in units per week), and any recreational drug use.
• Occupation: Some jobs are considered higher risk than others (e.g., scaffolder vs. office worker).
• Hobbies: Any high-risk activities like mountaineering, scuba diving, or private aviation.

Withholding information or being untruthful is known as 'non-disclosure'. If the insurer discovers this when a claim is made, they have the right to reduce the payout or void the policy entirely, meaning your family would receive nothing.

It might be tempting to omit something to get a cheaper premium, but it’s a false economy that could have devastating consequences. The good news is that insurers are in the business of paying claims. Data from the Association of British Insurers (ABI) consistently shows that around 98% of all life insurance claims are paid out. Claims are only denied in a tiny fraction of cases, usually due to deliberate non-disclosure.

7. Adding Critical Illness Cover: A Powerful Combination?

What if you don't die, but suffer a serious illness like cancer, a heart attack, or a stroke? You could be unable to work for months or even years, creating huge financial strain. This is where Critical Illness Cover (CIC) comes in.

It’s an optional extra you can add to your life insurance policy. It pays out your chosen sum assured as a lump sum if you are diagnosed with one of the specific serious illnesses listed in the policy.

• Pros: Provides a tax-free lump sum to cover medical bills, adapt your home, or replace lost income while you recover. It gives you financial breathing space when you need it most.
• Cons: It significantly increases the cost of your premium. The definitions of illnesses can be very specific and vary between insurers. For example, some less advanced cancers may not be covered.

An expert broker like WeCovr can be invaluable here. We help you compare the policy definitions from all the major UK insurers to find the most comprehensive cover for conditions you are most concerned about, ensuring you understand exactly what is and isn't included.

8. Don't Forget Income Protection: The Unsung Hero

While life and critical illness cover provide lump sums for specific events, Income Protection (IP) is designed to protect your most valuable asset: your monthly income.

If you are unable to work due to any illness or injury (not just a specific 'critical' one), an IP policy will pay you a regular, tax-free monthly income until you can return to work, retire, or the policy term ends.

Key features to decide on:

• Deferment Period: This is the waiting period before the policy starts paying out, e.g., 4, 8, 13, 26, or 52 weeks. The longer the deferment period you choose, the lower your premium. You should align it with any sick pay you receive from your employer.
• Level of Cover: You can typically insure up to 50-70% of your gross monthly income.
• Term of Payout: 'Short-term' policies may only pay out for 1, 2, or 5 years per claim. 'Long-term' policies will pay out right up to your retirement age if you can never return to work.

Income Protection is particularly crucial for the self-employed, freelancers, and tradespeople who have no employer sick pay to fall back on. Specialist policies sometimes called Personal Sick Pay are tailored for those in riskier jobs.

9. Understanding Policy Premiums: What Affects the Cost?

Your monthly premium is calculated based on the level of risk the insurer believes you represent. Key factors include:

• Your Age: The younger you are when you take out the policy, the cheaper it will be.
• Your Health: Your personal and family medical history plays a big role.
• Smoking/Vaping Status: Smokers can pay almost double what non-smokers pay.
• Sum Assured & Term: The more cover you want and the longer you want it for, the higher the cost.
• Type of Cover: Decreasing term is cheapest, followed by level term, with Whole of Life being the most expensive.

You will also have a choice between two premium types:

For long-term policies, guaranteed premiums are almost always the better choice for peace of mind and long-term affordability.

At WeCovr, we not only help you compare premiums to find the most competitive deal but also believe in promoting long-term health. That's why we provide our customers with complimentary access to CalorieHero, our AI-powered calorie tracking app. By supporting healthier lifestyles, we help our clients maintain their wellbeing, which is the best way to keep insurance costs down in the long run.

10. The Vital Step: Writing Your Policy in Trust

This is one of the most important yet often overlooked steps in the process. Writing your life insurance policy 'in trust' is a simple legal arrangement that ensures the payout goes directly to the people you choose (your 'beneficiaries').

Most insurers offer this service for free when you take out a policy. The benefits are immense:

1. It avoids probate: A trust is separate from your estate. This means the money doesn't have to go through the lengthy and complex legal process of probate, which can take months or even years.
2. Faster Payout: Because it avoids probate, your family can receive the money in a matter of weeks after the claim is approved, giving them access to funds when they need it most.
3. It can avoid Inheritance Tax (IHT): For most people, placing a life insurance policy in trust means the payout will not be considered part of your estate for IHT purposes. This can save your family a potential 40% tax bill on the proceeds.

Failing to write your policy in trust is a simple mistake that can cause significant delay, stress, and cost for your loved ones.

11. Reading the Small Print: Policy Exclusions and Definitions

Every policy document contains important details about what is and isn't covered. It’s crucial to understand these.

Common exclusions on a life insurance policy include:

• Suicide Clause: Most policies will not pay out if the person covered dies as a result of suicide within the first 12 or 24 months of the policy.
• Fraudulent Claims: If the claim is fraudulent or based on non-disclosed information.
• High-Risk Activities: If you die participating in a high-risk hobby that you didn't declare on your application, the insurer may not pay out.

For Critical Illness Cover, the definitions are paramount. An insurer's definition of a "heart attack" or "cancer" must be met for a claim to be paid. These definitions have become more comprehensive over the years, but they still vary between providers. Always read the Key Features document to understand the specifics.

12. For Business Owners, Directors, and the Self-Employed

If you run your own business, your financial protection needs are more complex. Standard personal policies are essential, but you should also consider business-specific protection.

• Key Person Insurance: This is a policy taken out by the business on the life of a crucial employee or director. If that 'key person' dies or becomes critically ill, the policy pays a lump sum to the business to cover lost profits, recruit a replacement, or repay business loans.
• Relevant Life Insurance: This is a tax-efficient death-in-service benefit for directors and employees of small companies. The business pays the premiums, which are typically an allowable business expense, and there are no P11D benefit-in-kind implications for the employee. It's a highly cost-effective way to provide life cover.
• Shareholder or Partnership Protection: If a business owner dies, what happens to their shares? This insurance provides a lump sum to the remaining owners, allowing them to buy the deceased's shares from their family. This ensures the family gets a fair price and the remaining partners retain control of the business.
• Executive Income Protection: This is an Income Protection policy paid for by the business for an employee or director. Like Relevant Life Cover, the premiums are a tax-deductible business expense, making it more efficient than a personal policy paid from post-tax income.

13. Reviewing Your Cover Regularly

Finally, life insurance should not be a 'set and forget' product. Life changes, and your cover should adapt with it. Plan to review your policy every few years, and especially after any major life event:

• Getting married or entering a civil partnership.
• Buying a new home or increasing your mortgage.
• Having a child.
• Changing jobs, especially if it involves a significant salary change or loss of death-in-service benefits.
• Getting divorced or separating.
• Becoming self-employed.

A review doesn't always mean buying more cover. Sometimes, as your mortgage decreases or your children become independent, you may be able to reduce your cover and your premiums.

Your Path to Peace of Mind

Choosing the right life insurance is a profound act of care for your family. By working through this checklist, you can move from uncertainty to clarity, ensuring you have the right protection in place. The peace of mind that comes from knowing your loved ones are financially secure, no matter what, is invaluable.

Navigating the market can still be complex, but you don't have to do it alone. Working with an independent broker like WeCovr gives you access to expert advice and allows you to compare policies and prices from across the entire UK market. We're here to help you tick every box on this checklist and secure the future for those who matter most.