Our Pick Of The Best Life Insurance Companies Of 2024
It can be easy to take life for granted. But if you were no longer here, what would become of those you leave behind? Financially at least, the prospect can be improved by having the right life insurance in place.
With the help of our life insurance partner, Lifesearch, we carried out some research to identify our pick of the best life insurance providers. We based our search on a healthy, single applicant, aged 30 looking for 25 years worth of level term cover. You can find full details in our methodology, below.
- Our pick of the best life insurance in the UK
- What is life insurance?
- Why should you take out life insurance?
- How to choose the best life insurance policy
- How much cover do you need?
- How much will it cost?
- Average monthly cost of life insurance types
- What are the different kinds of cover?
- Term life insurance
- Whole-of-life cover
- Joint life insurance
- Single life insurance
- Death-in-service cover
- Over-50s life insurance
- Mortgage life insurance
- Critical illness cover
- Income protection
- Family income benefit
- What should I look for in a life insurance provider?
- What are the main causes for life insurance claims?
- What’s our methodology?
Our pick of the best life insurance in the UK
*Fairer Finance data, July 2024
What is life insurance?
Life insurance pays out a lump sum (or sometimes regular payments) if you die during the term of the policy. This is how life insurance works in a nutshell:
- You pay a regular monthly premium to a life insurance company over an agreed term
- If you die during this term, a lump sum (the ‘sum insured’) will be paid out to your beneficiaries
- Beneficiaries are usually your family or other dependants
- The payout itself is tax-free – but it will form part of your estate which could mean it becomes liable for inheritance tax (IHT)
- Your beneficiaries can do what they like with the money, although it’s commonly used to clear any mortgage debt, as well cover household bills, living and childcare costs.
Why should you take out life insurance?
Given that none of us knows what’s around the corner, it’s comforting to have financial protection in place. But there are some key motivations behind taking out this cover, which we’ve outlined below.
- Taking out a mortgage: it’s not mandatory to take out life insurance when you get a mortgage, but it tends to be a common trigger. A Forbes Advisor survey found that around 21% of people with life cover took it because they were buying a house with a mortgage. You can arrange for a life insurance payout to clear any outstanding mortgage should you die during the term of the policy – more on this below
- Getting married: many people first start thinking about life insurance when they get married, enter into a civil partnership, or move in with a partner. Life insurance can offer peace of mind that your other half would be financially secure if you passed away
- Starting a family: having children is a common trigger for taking out life cover. A Forbes Advisor survey found that 30% of people who had life insurance said ‘becoming a parent’ had prompted them to buy cover. A lump sum payout could help support your dependant children financially if you were no longer around to provide for them
- Inheritance tax planning: a life insurance payout can also be used to mitigate any inheritance tax bill your beneficiaries may receive. By writing a life policy ‘in trust’, any payout remains outside of your estate for probate and tax purposes – so it goes straight to your loved ones (your broker or insurer will help you with the paperwork). It could then be used to pay an IHT bill if necessary. Whole-of-life policies can work best for tax planning purposes but these products are complex, so seek professional independent advice about whether such a policy would be appropriate for your circumstances.
How to choose the best life insurance policy
There are several different kinds of life insurance which we explore in more detail below. However, the best option for you will depend on a number of factors. These include:
- Your age
- Your circumstances (such as whether you have a family)
- Your outstanding debts
- The length of term over which you require cover.
A life insurance broker can take you through each option and recommend the best type of policy according to your needs.
Many brokers do not charge the customer a fee, but take a commission from the insurer instead. You can find out all you need to know with our guide to finding a life insurance broker.
If your life insurance policy is ‘written in trust’ any payout will go directly to the beneficiaries, rather than forming part of your estate (your broker or insurer should help you with this process). This means the money will not be taken into account for inheritance tax (IHT) purposes. Income tax or capital gains tax is not charged on life insurance payouts.
How much cover do you need?
As a minimum, you should opt for enough cover to pay your debts (including any outstanding mortgage, credit cards, and loans), meet the monthly household bills, keep your car, and maintain your current standard of living.
Some experts suggest that around 10 times your gross annual salary should be a starting point, rising to 15 or even 20 times for those with larger commitments.
How much will it cost?
Competition among providers, as well as the simple binary nature of the outcome (put bluntly, alive or dead) means that life insurance premiums are relatively cheap. In some cases they can start from as little as £5 to £10 a month.
The exact premium you are quoted however, will depend on a range of factors, including:
- Your age
- Your health and lifestyle (such as if you exercise and whether you smoke)
- The amount of cover you want (known as the ‘sum assured’)
- The length of the term you want the cover for.
You can expect to pay lower premiums if you take out life insurance when you are young and healthy, while premiums will gradually increase as you get older.
Costs also tend to be higher if you suffer from a health condition that could mean you are more likely to die sooner than the projected average age.
Average monthly cost of life insurance types
What are the different kinds of cover?
Life insurance can be something of a minefield to the uninitiated. Here’s a little more detail on the different types of cover.
Term life insurance
In broad terms, the most common form of life insurance, ‘term insurance’ is the cheapest option as it only pays if you die within the specified term of the policy.
This is opposed to ‘whole-of-life’ cover (more detail on this below) which pays out at whatever point you die.
According to a Forbes Advisor survey around 84% of those with life cover have term insurance.
But term life insurance itself falls into three subsections: decreasing term, level term and increasing term. Here’s an outline of each.
Decreasing term: Decreasing term is the most common type of ‘term’ cover. The amount that will be paid out in the event of death reduces over time, so it’s most suitable if your own financial commitments will also reduce.
The most notable example of this is a repayment mortgage – the life insurance pay out decreases in line with the projected fall in your mortgage balance as you chip it away.
Decreasing term insurance is cheaper than level term insurance, and often the most cost-effective option. That said, if you have children who depend on you financially, level term cover may be a better option.
Decreasing term insurance is sometimes also known as mortgage life insurance – more on this below.
Level term: A level term policy pays out a fixed amount if the policyholder passes away within a pre-selected period of time – known as the policy ‘term’. No matter how many years into the policy you pass away, your beneficiaries will receive the same payout – known as the ‘sum assured’.
This makes level term cover well-suited to an interest-only mortgage, where only the interest is paid off but the capital debt does not decrease. While premiums remain the same during the term, they tend to be more expensive than those attached to decreasing term cover.
If you survive the ‘term,’ your cover will end, and you will need to purchase a new life insurance policy.
Increasing term: With an increasing term policy, the amount insured goes up every year. How this annual increase is calculated depends on the insurer and policy. It may be linked to an inflation index, an insurer-set multiplier or, rarely, simply rise by a fixed amount.
Because the amount of cover becomes greater over time, premiums tend to be more costly than other types of life insurance.
Terminal illness is covered as standard under most life insurance. This means that the policy would pay out if you contracted a terminal illness with a medically diagnosed life expectancy of 12 months or less. However, in this case there would be no payout on death.
Whole-of-life cover
Unlike term insurance, which only pays out if you die within a specified period, a whole-of-life policy is designed to run for the remainder of your life.
Providing you keep paying your monthly or annual premiums, your loved ones are guaranteed to receive a payout when you die. For this reason, premiums for whole-of-life insurance tend to be more expensive than term insurance.
Furthermore, as this type of policy is typically linked to a specific investment, your premiums may also increase if that investment does not perform well.
Usually, with whole-of-life cover, you will need to pay premiums for the rest of your life. However, some insurers allow you to stop making payments once you reach a certain age (around 90) without discontinuing cover.
As with all life insurance policies, whole-of-life insurance takes into account your age and any pre-existing medical conditions.
Payouts for whole-of-life cover are often used to offset any inheritance tax (IHT) bill.
Joint life insurance
A joint life insurance policy covers two people, usually who are married or in a civil partnership. But it’s also possible to buy joint life insurance as an unmarried couple, or when you are financially linked to another person through other means, such as being business partners.
Joint life insurance means you pay just one premium which will provide cover for you both. However, the policy only pays out once – on the first person to die within the term.
Before taking a joint policy, it’s worth checking whether two single policies (see below) could be a better alternative. While single policies mean two sets of premiums, it also means two potential payouts.
According to a Forbes Advisor survey, 28% of those with life insurance have joint cover.
Single life insurance
This type of policy covers just one person, opposed to joint life insurance which is used to cover a couple.
That said, if you’re in a couple, you might consider taking out two single policies so your dependents could potentially receive two payouts. This approach tends to be more expensive than a joint policy however, as two lots of premiums will be payable.
Death-in-service cover
If you are employed, your workplace may offer a ‘death-in-service’ policy as part of a package of company benefits.
This type of policy will pay a tax-free lump sum to your family should you die while working for the company.
This sum will usually be a multiple of around four times your average salary (gross) but you must be on the payroll to qualify. As soon as you stop working – or move jobs and start working for a new employer – you are no longer entitled to receive it.
However, in some cases it may be that death-in-service is sufficient cover. According to a Forbes Advisor survey more than a quarter (27%) of those with life insurance have cover in place through their employer.
Over-50s life insurance
The older you get, the harder it can be to find affordable life insurance. This is where ‘over-50s life insurance’ can come into play.
As it says on the tin, this cover is designed specifically for those aged over 50. Applicants are not underwritten and are therefore guaranteed to be accepted, irrespective of their current health or lifestyle. This can make this type of policy popular.
Premiums are usually fixed for the duration of the policy, and offer guaranteed payouts, so long as you keep up with all payments.
However, these plans often attract criticism on the basis that they can pay out less than a policyholder has paid in – so they require careful research or professional advice before signing up.
According to a Forbes Advisor survey, 11% of those with life insurance have ‘over-50s’ cover.
Mortgage life insurance
This type of life insurance is another name for ‘decreasing term insurance’ – it pays out if you pass away before you have paid off your mortgage. As this cover is tied to your mortgage debt, the payout decreases as you continue to pay it off.
Critical illness cover
Many life insurance policies allow you to add on critical illness cover for an additional cost. Critical illness cover pays out a tax-free lump sum if you are diagnosed with a specific illness or medical condition listed on your policy – such as cancer, heart attack, stroke or loss of limb – during the term.
Its purpose is to offer a financial buffer at a highly stressful time of life, and support if you are forced to stop working.
The funds paid out can be used to ensure your mortgage and other major financial commitments are paid off. The money can also be used to make any required adjustments to your home that make life more comfortable.
Critical illness cover is considerably more expensive than life insurance. So, while you should look to take out enough cover for your mortgage, debts and monthly bills, in reality, it may be a case of seeing how much you can afford.
Read the small print carefully as insurance companies list a finite number of conditions they will cover – as well as specific definitions. While the number of conditions can run to more than 100, if yours isn’t included, you won’t get a pay out.
You may also be declined if you have withheld information about your medical history or if the illness you contract isn’t advanced enough.
According to a Forbes Advisor survey, around a third (31%) of those with life insurance have critical illness cover added on.
Income protection
Income protection will pay out a regular income if you are unable to work due to illness or injury, enabling you to continue to meet your monthly outgoings.
Many policies come with a ‘deferral period’ where you won’t receive a pay out for, say, the first six months of being unable to work. But the best policies will continue to pay over a long period of time until you are fit enough to return to work – or reach retirement age.
The amount you take out is usually based on your salary. Premiums can be guaranteed or reviewable.
If you don’t have dependents, income protection is likely to be the most important type of cover. It can also be crucial if you are the main breadwinner or sole earner in your household.
Equally, income protection can be especially important for the self-employed who are not entitled to sick leave or pay from an employer.
When buying income protection, you should ideally arrange the cover to pay out if you are unable to carry out your current occupation rather than ‘any occupation’ – otherwise you may be deemed fit to work and not receive a pay-out. But ‘current occupation’ cover will be more expensive
Family income benefit
This variation on term insurance is designed to cover regular monthly expenses for your family if you pass away.
It is a cheaper type of protection which pays out a series of smaller regular tax-free amounts to your beneficiaries that can be used as income – as opposed to one single lump sum which needs to be managed or invested.
The term of the policy is often timed to cover the period children are at school, or until your child becomes non-dependent – though can extend beyond this.
Generally speaking, the total paid out by the insurer is lower than under ‘term’ policies, meaning the amount will not be sufficient to clear the mortgage. But as the payout is lower, premiums are usually lower, too.
What should I look for in a life insurance provider?
When looking for a life insurer, be sure to check exactly what is and is not included in each provider’s policy – the cheapest may come with more exclusions, for example. If an exclusion or definition is unclear, find out what it means from the insurer.
Check too whether you can add extra features to your policy – and the extra cost of doing so. You might be able to add a waiver of premium clause, for example. This will cover your monthly premiums if you can’t work due to illness or injury.
Finally, check the percentage of total claims that each provider has successfully paid out. Due to the nature of the cover, these are usually pretty high – between around 94% and almost 100%. We’ve listed the latest claims data (from 2023) for each provider in our rankings above.
Carry out research on how life insurance works and consider using a specialist broker to find you the best deal for your requirements.
Many brokers and independent financial advisors take their fee as commission from the provider, which means the customer is not directly charged. Under rules set down by the Financial Conduct Authority, they must disclose how. and what, they are paid.
What are the main causes for life insurance claims?
What’s our methodology?
We obtained life insurance quotes through Lifesearch, our life insurance partner, for a single 30-year old (insurers are not permitted to price based on gender).
We assumed that the individual was a healthy non-smoker, with no pre-existing medical conditions, and working in a low-risk job. On this basis we looked for £200,000 worth of level-term life cover spanning 25 years.
We then looked at the percentage of life insurance claims each provider paid out, as well its customer service score (as rated by Fairer Finance, July 2024).
With all premiums coming in at under £10 a month and a price differential, in some cases, of pennies, we weighted the results on:
- Percentage of claims paid
- Customer service score
- Any other benefits that come free with the policy.
All policies listed offer a funeral pledge of at least £5,000 which bridges any gap in costs between the funeral and getting the full payout.
All come with the option to be written ‘in trust’ so that the proceeds do not form part of your estate and thus become liable to tax.
We listed only policies that cover terminal illness as standard. This means the policy will pay out on terminal illness or death (whichever happens first).
Critical illness cover will need to be added separately to the policy, and could increase the monthly premium you are quoted.
In line with industry standard, none of the life insurers provide cover for suicide for the first 12 months.
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