Not everyone needs life insurance (also known as life cover or life assurance). But if your children, partner or other relatives depend on your income to cover the mortgage, or other living expenses, then the answer is yes - you probably do want life insurance, since it will help provide for your family in the event of your death.
Insurance for Service life
The Armed Forces recognise that the particular hazards of Service life can make getting the right insurance difficult and expensive. If you are in certain high risk occupations (for example diving, parachuting, flying, bomb disposal etc) you might be eligible for a refund of the extra premium you have to pay by claiming under the Service Risks Insurance Premium Refunds (SRIPs) scheme. You can find out more about SRIPs in JSP 752, chapter 10 section 6.
The MOD has contributed to the PAX Insurance Scheme which provides life and personal injury insurance at reasonable rates for Service personnel.
There are a number of specialist insurers that provide insurance for Armed Forces personnel. You can find one through the MOD-facilitated providers or through the directory provided by the Services Insurance and Investment Advisory Panel (SIIAP)
Bear in mind that if you stop working for the Armed Forces, perhaps through ill health, you may lose the death-in-service benefits and may not be able to take out life insurance at that time.
If you have dependents, you can'’t rely on the government to take care of your family – the money they would get from the state is much lower than you'd probably expect. If you want to provide for your family financially if you die, life insurance is a must.
Different types of life insurance
There are two main types:
- Term life insurance policies run for a fixed period of time (known as the 'term' of your policy) – such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the term of the policy. There's no lump sum payable at the end of the policy term.
- A whole-of-life policy will pay out no matter when you die, as long as you keep up with your premium payments.
What isn't covered?
Life insurance usually only covers death – if you can't provide for your family because of illness or disability, you won't be covered.
Some life insurance policies provide a terminal benefit, although these are not automatically granted.
A terminal benefit will pay out on diagnosis of a terminal illness. Check the terms and conditions of your policy to see if you’re covered.
Most policies have some exclusions (things they don't cover). For example, they may not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports.
If you have a serious health problem when you take out the policy, your insurance may exclude any cause of death related to that illness.
You can buy other insurance products for these issues, which cover:
- long-term illness
- critical illness cover, or
- total and permanent disability.
Choosing the right policy and cover
To get your life insurance right, you need to work out how much cover you need to protect your loved ones, and also make sure you can afford to keep paying the premiums. Here’s what you need to know to compare policies and decide on the right level of cover.
Types of life insurance
| Policy type
|How it works
||Pros and cons
|| Best for
|Level term insurance
||Your policy lasts for a pre-agreed number of years and pays out a set amount if you die during that term.
√ Affordable for most
|People with dependants and those with an interest-only mortgage
|Decreasing term insurance (also known as a mortgage protection policy) – designed to be linked to a repayment mortgage where the outstanding balance decreases over time
||Your policy lasts for a pre-agreed number of years, which usually matches the length of your mortgage. It pays out if you die during that term. Each year the potential pay-out decreases as your mortgage loan decreases. This type of policy is cheaper than a level term insurance.
||√ Affordable for most.
X Typically covers only mortgage balance
|Those with a repayment mortgage whose dependants can cover other expenses on their own.
|Family income benefit insurance
||Like level and decreasing term except that it pays out a regular income for the remaining term rather than a lump sum.
||√ Very affordable for most.
||Best for people whose dependants may suffer financially if the main earner dies.
||Your policy covers you for the whole of your life so your dependants get a payout no matter when you die.
||√ Pays out to your dependants as long as you keep up with monthly payments.
X More expensive than short terms policies
|Generally used to provide money for a funeral or Inheritance Tax planning.
|Pension term insurance
||This type of policy is no longer available, but if you bought one before 2007 you may want to keep it for its tax benefits, as the premiums are eligible for tax relief.
||√ Eligible for tax relief.
Choosing between single and joint life policies
'Single life' policies cover just one person. A joint life insurance policy covers two people and when one person on the policy dies, the money is paid out and the policy ends.
You must decide whether joint policy pays out on first or second death as this will determine when the policy ends.
When choosing between these options about:
- Affordability– a joint life policy is usually more affordable than two separate single policies.
- Cover needs – do you both have the same life insurance needs, or would separate policies with different levels of cover be more appropriate?
- Work benefits – if one of you has a work benefits package that includes 'death in service' benefits, you might only need one plan.
- Health - if your joint policy is with someone in poor health, this might increase your monthly payments.
How much life insurance cover do you need?
Step 1 - Add up your debts and expenses
First add up:
- your debts: your total mortgage and other debts, such as credit card debts or personal loans
- expenses you wish to cover: your basic monthly outgoings and other costs, such as the cost of putting your children through school and university, or your funeral
Step 2 - Check the cover you already have
Death-in-service benefits for Service Personnel can be substantial under the Armed Forces pension schemes. The exact payments will depend on which pension scheme you're a member of and your individual circumstances. However, the benefits may not be enough to cover all individual requirements and you are encouraged to take financial advice to see whether you need extra cover.
Step 3 - Calculate the cover you need
When you have these two figures, take away the benefits or cover you already have from the total amount your dependants need – the result is the amount of life insurance cover you should take out.
Alternatively, use a common rule of thumb which is your annual income multiplied by 20.
Do you need to make sure your cover is linked to inflation?
If you just want to cover your mortgage you don't need your policy to be inflation-linked. If you need it to maintain your dependants' current lifestyle then it ought to be linked to inflation.
Life insurance premiums differ depending on risk, as with all insurance. The more likely it is that you'll die in the near future, the more you'll need to pay for cover. The specific factors insurers look at are:
Money fitness tip
If you're in an especially hazardous occupation eg military flying, claim reimbursement for the increased premiums resulting from your increased risk.
- your job
- whether you smoke
- your current health and medical history
- your lifestyle
- how much cover you want
But even if you're high risk, you don't need to accept the offer that you get - it always pays to shop around.
Whole-of-life policies guarantee a payout so they are usually more expensive than level term life insurance or decreasing term life insurance.
If you're older - or if you're asking for a lot of cover - there's a greater chance the insurer will ask for further medical information from your GP or require you to undergo a medical examination before offering you cover.
Covering the cost of life insurance premiums if you can't work
For an extra cost of about 2% of your regular insurance payments you can buy 'waiver of premium' cover. If you can't work because of illness or injury this waiver will cover your premiums, but usually only after you've been off sick for at least six months.
Read the fine print carefully before you buy so you know exactly how this protection works.
Another option is to take out a different kind of insurance policy that will cover your expenses if you become sick, for example, critical illness insurance or income protection insurance.
Buying life insurance
Shop around for quotes
To find the best value on cover, compare as many offers as possible. You can get specialist life insurance quotes from:
For non-specialist insurance quotes you can try
- comparison sites that search the market for the best deals - use at least two sites to be sure you get a wide range of offers
- big insurers that don't sell through comparison sites
- your mortgage provider - most offer you life insurance automatically when you take out a mortgage, but you don't need to take the offer, you should be able to find a better deal elsewhere
- credit card companies
- retailers like major supermarkets
- specialist broker, or
- independent financial advisers
If you're looking for a straightforward term life insurance policy, you probably don't need a specialist adviser. These policies don't differ much between providers, so you can save money without compromising cover by searching for the best deal on your own and checking with an insurance broker or financial adviser to see if you can get it any cheaper.
Read the small print
Read the small print before you take out the policy so that you know what you're buying. Make sure you know exactly what is and isn't covered. If you see something you don't understand, ask the insurance provider or your insurance broker or financial adviser.
Exactly what is excluded (what isn't covered) can vary by insurer. When you're comparing offers, you must read these definitions so you can be sure you're comparing similar policies.
Be honest about your medical history
It's vitally important that you are honest and give all the right information when you apply for life insurance. When a claim is made, insurers will look at your medical history. If you weren't honest on your original application, or didn’t disclose all material facts for which you were asked, they may not pay out.
Read the application carefully and give all the information you can. Then keep a copy of your application so you can refer to it later. If you forget to tell your insurer something important, get in touch as soon as possible to let them know.
If you already have life insurance is it worth switching?
In the last few years, life insurance costs have really come down. So it's a good time to shop around to see if you can get a better premium.
If you're young or still very healthy, you may find it easy to get a better deal. But as you get older or develop medical problems, you may find it’s cheaper to stick with a policy you bought when you were younger.
In any event, if you do decide to switch, don't cancel your existing policy until the replacement policy is fully set up and you have paid at least the first premium. Once you have cancelled a policy, you can’t later change your mind.
The 30-day cooling-off period
Companies that sell life insurance must either be regulated by the Financial Conduct Authority (FCA) or be the agent of a regulated firm.
Thanks to Financial Conduct Authority rules, all life insurance contracts come with a 30-day cooling-off period. During this time you can cancel your policy and receive a full refund of any premiums paid.
Keeping your cover up to date
Life insurance needs will change. Once a year, you should review your policy to make sure your premiums are still competitive and that you still have the right amount of cover. You may need to add more cover if:
- you've had another child
- your partner has stopped working
- you've taken out a new or larger mortgage
- your job role has changed
Making a claim
If you need to make a claim on your policy, see Making a claim.