What is life insurance?
Life insurance cover pays money to chosen family members when you die. This can give you and your family peace of mind that they’ll be financially supported after you’re gone.
How does life insurance work?
There are different types of life insurance policy available on the market, but they’ll all pay a lump sum to your chosen family members (also known as your ‘beneficiaries’) if you die while covered. You’ll have to pay for your cover each month, and you can decide how much is paid out, should the worst happen.
Some policies even pay out if you develop a critical illness. Our guide to critical illness cover can help you understand how it works.
Life insurance is especially useful if you have dependents – anyone who depends on your income coming into the household.
The policy’s pay out can help your family get by without your income, as they’re free to spend it on anything they like, including:
- Household bills
- Childcare costs
- Mortgage payments
- Funeral costs.
Different types of life insurance
Permanent life insurance covers you for your whole life (or if you cancel the policy), while other types of life insurance will only cover you for a set period.
For example, term life insurance pays out a lump sum if you die within a specified period – usually, 10, 20 or 30 years.
There are three main types of term life insurance:
- Level term life insurance: coverage stays the same across the term of the policy
- Increasing term life insurance: coverage increases over the term of the policy to keep up with inflation
- Decreasing term life insurance: coverage decreases over the term of the policy - usually used to cover a debt that reduces over time, such as a repayment mortgage.
Our guide to different types of life insurance has more information about the range of cover you can choose from.
What happens if you stop paying for life insurance?
If you stop paying for life insurance, you’ll no longer be covered. Your policy will lapse, which means it’s no longer valid, and no money will be paid out if you die.
If you can’t afford to make a life insurance payment, it’s worth checking with your provider to see if there’s a grace period. If there is, you’ll be able to reinstate your policy within a short time of it lapsing.
Keep in mind that every insurance company is different. They don’t all offer a grace period, and the length of this period may be longer or shorter when compared to other providers.
It’s important to read the small print and ask your provider if you’re unsure about anything. If you need more help, our guide can help you know what to think about before cancelling your life insurance policy.
Can I sell my term life insurance policy for cash?
Yes, you can sell a term life insurance policy for cash, but only if the policy can be converted into permanent life insurance. Ask your provider if you need to confirm this.
The amount you can sell your policy for will be lower than any pay out your family would receive if you died. However, it’s usually higher than the amount you’d receive if you simply cancelled your policy – also known as the policy’s ‘cash surrender’ value.
Providers will make a sale offer based on your personal circumstances, such as your age and health. The payout varies depending on the type of insurance you’re selling, your monthly payment amount, and death benefit (how much the policy would pay out).
It’s a good idea to speak with a financial adviser before buying a term life insurance policy, especially if you think you might sell it in future.
What happens if you outlive your term life insurance?
You won’t get any money back if you outlive the length of your term life insurance policy. Your policy will simply expire, and you’ll no longer need to pay for it. If you want to stay covered, you’ll need to take out a new life insurance policy.
However, you might want to choose a different type of product, such as critical illness cover.
Our guide to critical illness cover can help you understand how it works.
Some term life insurance policies can be extended or converted into permanent life insurance policies. Check the small print to see if yours can.
What factors can impact the cost of my life insurance policy?
When you apply for a life insurance quote, you’ll be asked to fill in a questionnaire about your health and lifestyle. This helps the insurer understand how likely it is that they’ll need to pay out on your policy.
You’ll be asked a few things, such as:
- Your age and weight
- Your family medical history
- Whether you smoke or drink
- If you have, or have recovered from, any serious health conditions
- If you’ve had major surgery
- If you’re receiving treatment for mental health conditions like depression, anxiety or stress.
Your answers will go to a team of people called Medical Underwriters. It’s their job to assess your life expectancy, which helps them work out the risk to the insurer of covering you. The greater the risk, the higher your premium will be.
Insurers take a lot of different things into account when creating a life insurance quote. You can find out more in our guide to the factors that decide what your life insurance will cost.
Will my family medical history affect my life insurance?
It will. Having a family history of certain health conditions can push up the cost of your life insurance. Some insurers might even refuse to give you cover.
Insurers are most interested in hereditary conditions, which is anything passed on from your parents. Hereditary illnesses are an important factor when estimating your life expectancy, and can present a risk to the insurer if they choose to cover you.
Some examples of hereditary illnesses are:
- Heart disease
- Certain types of cancer, such as ovarian, breast and colon
- Multiple sclerosis
- Alzheimer’s disease
- Parkinson’s disease
- Motor neurone disease.
While looking at family medical history, Medical Underwriters might consider how many family members have experienced the condition. They’ll also look at how early in their life they were diagnosed. If a diagnosis came after the age of 60-65, this might be less concerning for insurers.
Usually, Medical Underwriters will only be interested in your closest relatives, such as your biological parents and siblings.
What happens if I’m not honest about my medical history?
It’s important to be honest and open about your personal and family medical history, even if you’re worried about it impacting your policy. Your policy can be invalidated if you downplay health conditions, give a false idea of your lifestyle, or leave details out altogether.
Insurer can easily confirm this information. They can request your medical records if you’ve given them permission, and they can even do this after you’ve died - before they decide whether to pay out on your policy.
If they find out you’ve lied or left anything out, your life insurance policy will be invalid. This means it won’t pay out when you die, even if you’ve died from a completely unrelated condition.
Your family might then have to fight to overturn a claim that’s been denied. This can cause them even more heartache and stress after you’re gone.
How to find best life insurance if you have a pre-existing condition
Every insurer has its own list of what they consider pre-existing conditions, and which hereditary illnesses they’re most concerned about. Some provides will cover things others won’t. This is sometimes decided on a case-by-case basis, so it’s worth shopping around.
If you have a rare hereditary condition in your family, the insurer might ask for your consent to contact your GP or speak with other healthcare professionals who have treated you. This helps them get more information about your illness before deciding whether to offer you life insurance.
Insurers usually employ their own medical doctors to advise on difficult or unusual cases. You might also be asked to consent to a medical examination by the insurer’s own expert.
Nobody wants to think about dying, but having a life insurance policy in place can help to cushion the blow for your family.
Living as healthy a lifestyle as possible can help to reduce the cost of your premium. It’s important to be completely honest so that your policy doesn’t become invalid.
There are lots of different types of life insurance policy out there. If you need help choosing one, it’s best to discuss it with a financial adviser.
More on what is life insurance?
I’m over 60. Am I too old for life insurance?
Over 50 life insurance is designed for people aged 50 and over. The maximum age to qualify does vary between providers, but can be up to 85 years old with some.