Is life insurance worth your money?

Telegraph

20-05-2025

Life insurance can cost as little as a few pounds a month, which seems a small amount in return for a guaranteed payout for your loved ones when you die. If you pass away within a few years of taking out life cover, then the policy will likely pay out more than you paid in the first place.
However, the reverse is true, too: if you live a long life, you could end up paying more than your family will ever receive. But millions of people taking on these odds has given rise to an industry that is now worth more than £65bn.
So, is it really worth the money? Not all life cover policies are made equal – and making sure you have one that is well suited to your family, your age and your health is what ultimately determines whether it is worth the cost.
Here, Telegraph Money breaks down the different types of life cover and how to tell which policy might be suited for you and your beneficiaries' needs.
Who needs life insurance, and what is it?
How does life insurance work?
Whole of life cover versus fixed term assurance
Other types of life insurance policies
Should you get multiple life insurance policies?
How does a beneficiary make a claim?
What happens if I don't have life insurance?
Who needs life insurance, and what is it?
If you have financial dependents, or have debts including a mortgage, then it is worth considering a life insurance policy, regardless of your age or whether you have any medical issues. Dependents in this case could include a spouse, children or other relatives.
The cost of your life cover will depend on a range of factors, but primarily these will be your age, your health and how large you would like the payout to be in the event of your death. Generally, policies become more expensive as you age, and if you are unwell.
A life insurance payout could help your family pay for childcare and sustain their lifestyle after your earnings are taken out of the equation. If you are low on cash savings, they could also be a way to pay towards your funeral costs.
How does life insurance work?
If you take out a life insurance policy, you'll pay a monthly premium that will cover a payout in the event of your death.
Depending on the type of policy you choose, these payments may be made indefinitely, or if the insurance is specifically to cover future mortgage payments, for example, the payments and policy will end when your mortgage has been paid off.
Whole of life cover versus fixed term assurance
There are two main types of life cover – these are 'whole of life', and 'term life'. We outline some of the main differences below:
Term life insurance is typically cheaper. This is because a term policy only insures you for a fixed period – for example, 10 or 20 years.
You might go for a 'level term' payout, where the lump sum stays the same throughout the life of your policy, which can give extra peace for mind for your family.
There's also a 'decreasing term', which means the payout amount will decrease over the course of the policy. The policy will usually end when the payout decreases to zero. It's usually used to pay off debt, such as a mortgage or a large loan, and it should decrease at the same rate as your mortgage debt.
'Increasing term' insurance has a payout that grows over time – it will either grow by the same amount each year, or it may be linked to inflation (often the Retail Price Index). If you're not sure what kind of sum to look for, a general rule of thumb is to look for a payout that is worth 10 times the salary of the highest earner in the household.
Whole of life cover is designed to pay out to your family whenever you die. These policies come at a higher price, and are mostly designed for older people. They also tend to be 'guaranteed acceptance', meaning that the payout will go through as long as you keep up with your premium payments.
For example, if a 65-year-old man with a standard life expectancy of another 20 years applies for a guaranteed acceptance life cover for £100,000, then the average quote is around £240 a month, according to the wealth manager Evelyn Partners. That would cost around £57,600 over the course of his lifetime.
If the same person applied for a cover that did not guarantee acceptance, and instead was medically underwritten – meaning it involves health checks or medicals – it would cost around £200 a month, approximately £48,000 over their lifetime, and still pay out £100,000.
Natasha Etherton, of Evelyn Partners, added that relatives of elderly people should be careful about cancelling these policies, especially as they can make up an important part of inheritance tax planning.
'If you happen to take over your mum or dad's finances using a Power of Attorney don't immediately cancel what appears to be expensive life insurance,' she said. 'Look into it first and seek advice, as this may be a further part of your inheritance or may have added benefits attached – such as early payout for long-term care.'
Other types of life insurance policies
There are several types of life insurance – click through to our dedicated guide which explains them all.
These include:
Joint life insurance
Universal life insurance
Over-50s life insurance
Critical illness cover.
Should you get multiple life insurance policies?
There's no legal limit on the number of life insurance policies you can take out, and you might want different policies to cover specific things like your mortgage, and another for more general cover.
However, you will end up paying more in premiums, and it might be that one policy can cover everything – just make sure you're aware of what's in the small print, and talk to your provider to make sure the policy covers what you want it to.
How does a beneficiary make a claim?
If you are a beneficiary of a life insurance policy, the first step is to contact the insurance company as soon as you are able.
You will need to provide them with the original or certified copy of the policy holder's death certificate in order for the insurer to begin the claim process.
It should take 30 days after they have received all the necessary documents.
What happens if I don't have life insurance?
There is no requirement to get life insurance. If you don't have one, there will be no payout when you die, but you can still leave money and other things to your heirs from your estate – but they'll have to wait until probate has been completed for your assets to be released.