Protection Insurance

Life insurance pays a tax-free lump sum, or a regular income for family income benefit, to your beneficiaries if you die during the policy term. The four main UK options are level term (a fixed sum assured throughout), decreasing term (the sum reduces in line with a repayment mortgage, so it is cheaper), whole of life (pays out whenever you die, often used for inheritance tax planning), and family income benefit (a monthly tax-free income instead of a lump sum).

Standard UK policies cover the big three, cancer, heart attack and stroke, which account for the majority of claims. Most providers also list 40 to 80 additional conditions, including multiple sclerosis, Parkinson’s disease, kidney failure, major organ transplant, motor neurone disease, total permanent disability, blindness, deafness, third-degree burns and benign brain tumours. Definitions and severity thresholds vary between insurers, so the exact wording matters more than the headline number of conditions.

Critical illness pays a one-off lump sum on diagnosis of a defined serious illness. Income protection pays a regular monthly income, usually 50% to 65% of your gross salary, if you cannot work due to any illness or injury, after a chosen waiting period. Income protection covers a far wider range of conditions, including back pain, stress and mental health issues, which critical illness usually excludes. Many people hold both: a lump sum for big shocks, a monthly income for everyday inability to work.

Employer death-in-service is usually a multiple of salary, commonly 2 to 4 times, and is paid only while you are still employed there. It stops the day you leave, change jobs or are made redundant, and it cannot be transferred. It also rarely includes critical illness or income protection at a meaningful level. Personal cover sits with you for life, is portable between jobs, and lets you choose the sum assured and term that match your mortgage, family and lifestyle.

The main pricing factors are age (premiums rise sharply each year you wait), smoker status (smokers typically pay roughly double), your health and medical history, family medical history, weight and BMI, alcohol consumption, occupation (manual or high-risk jobs cost more, especially for income protection), hobbies (climbing, diving, motorsport), the sum assured, the term length and the policy type. Adding critical illness or waiver of premium increases the cost. Decreasing term is cheaper than level term for the same starting sum.

A common rule of thumb is 10 times your gross annual salary, or enough to clear your mortgage plus 5 to 10 times your income on top. A more accurate method is to add up your outstanding mortgage, other debts, funeral costs (around £4,000 to £5,000), and the annual cost of running the household multiplied by the number of years your family would need support, often until the youngest child is 21. Subtract any existing cover and savings, and the remainder is your target sum assured.

Writing your life policy in trust means the payout goes directly to your nominated beneficiaries rather than into your estate. The benefits are significant: the money is usually paid out within weeks instead of waiting months for probate, it falls outside your estate for inheritance tax (currently 40% above the nil-rate band), and it bypasses any creditors of the estate. Most UK insurers provide free trust forms and it takes around 15 minutes to set up. We strongly recommend it for almost every policy.

A joint life first-death policy is cheaper because it only pays out once, on the first death. The downside is that the surviving partner is left with no cover and has to take out a new policy at an older age and possibly worse health. Two single policies cost more upfront but pay out twice, one on each death, stay with each person if the relationship ends, and let you tailor the sum assured to each partner’s income. For most couples with children, two single policies are the better long-term choice.

Indexation, also called index-linked or inflation-linked cover, automatically increases your sum assured each year, typically by RPI or a fixed 3% to 5%. Premiums rise in line with the cover. Without it, a £200,000 policy taken out today could be worth much less in real terms in 25 years. Indexation is worth considering on level term and family income benefit policies, especially long ones. It is less relevant on decreasing term, because that cover is designed to track a falling mortgage balance.

Guaranteed premiums stay the same throughout the policy term, subject only to indexation if selected. Reviewable premiums start lower but the insurer can increase them at set review dates, usually every 5 or 10 years, based on claims experience, your age and medical advances. Guaranteed premiums cost more at the start but give certainty for budgeting, which usually wins out over a 25-year term. Almost all of our recommendations use guaranteed premiums.

In recent ABI figures, UK insurers paid out 98% to 99% of life claims, 91% to 92% of critical illness claims, and 79% to 84% of income protection claims. Life cover pays on death, or on terminal illness diagnosis with less than 12 months to live. Critical illness pays on confirmed diagnosis of a defined condition meeting the policy wording. Income protection pays after the chosen waiting period (usually 4, 13, 26 or 52 weeks) and continues until you can return to work or the term ends. The biggest cause of declined claims is non-disclosure on the original application.

Indicative monthly premiums for a healthy non-smoker aged 35 taking 25-year level term cover: £200,000 life only from around £8 to £12 a month, £200,000 life plus critical illness from around £30 to £45 a month, and £2,000 a month income protection (52-week waiting period) from around £20 to £30 a month. Decreasing term is roughly 30% cheaper than level term. Smokers typically pay double. Premiums rise sharply with age, so delaying often costs far more than the policy itself.

Direct and comparison-site policies are usually identical products at identical prices, because insurers do not discount through brokers in this market. What changes the outcome is the advice and structuring. A broker recommends the right type of policy for your situation, sets it up in trust, completes the application accurately to avoid future claim disputes, packages medical disclosures correctly, and stays involved at claim time. We are independent, FCA regulated and paid by commission from the insurer, so there is no fee to you.

Most applications are accepted on the application form and online health questions alone, with no medical exam. For larger sums assured (typically above £500,000 to £1m), older applicants, or where you disclose specific conditions, the insurer may request a GP report (no cost or effort to you), a nurse visit at home or work, or blood and urine tests. The insurer pays for any tests. Honesty on the application is essential, as undisclosed medical history is the most common reason claims are declined.

Common exclusions include suicide in the first 12 to 24 months of a life policy, pre-existing medical conditions you did not disclose, illnesses or injuries from hazardous activities you did not declare (such as skydiving or motor racing), drug or alcohol misuse, self-inflicted injury, and on critical illness, conditions that do not meet the precise severity definition in the policy wording. Income protection usually excludes voluntary unemployment and short-term absences within the waiting period. We walk you through every exclusion before you commit.