Insurance Guide · Updated 2026
Life Insurance in the UK: Complete 2026 Guide
Life insurance pays out a lump sum (or income) if you die during the policy term, giving your family financial protection. This 2026 guide covers the main policy types, how much cover to buy, and the crucial step of writing your policy in trust.
Term life insurance vs whole-of-life
Level term insurance pays a fixed lump sum if you die within a set term (e.g. 20 years) — the most common and cheapest form, often used to cover a repayment mortgage or income replacement while children are dependent. Decreasing term insurance is specifically designed to track a repayment mortgage balance, so the cover reduces roughly in line with what you still owe, making it cheaper than level cover for that purpose. Whole-of-life insurance covers you for your entire life (guaranteeing a payout eventually) and is far more expensive as a result — commonly used for Inheritance Tax planning or funeral cost provision rather than mortgage protection.
How much cover do you need?
A common starting rule of thumb is 10x your annual salary, but a more precise approach adds up: your outstanding mortgage and other debts, the cost of replacing your income until children are financially independent (e.g. years until age 18 or through university, multiplied by annual living costs), and any funeral or estate costs. Subtract existing savings, investments, and any life cover already provided by your employer (often 2-4x salary as a "death in service" benefit — see our death-in-service guide).
The critical step: writing your policy in trust
A life insurance payout that goes directly to your estate can (a) be delayed by probate, taking months your family may not be able to wait, and (b) count towards your estate for Inheritance Tax, potentially costing your beneficiaries 40% of the payout above the Nil-Rate Band (£325,000) plus Residence Nil-Rate Band (£175,000). Writing the policy in trust (most insurers offer this free at setup) means the payout goes directly to your chosen beneficiaries, bypasses probate, and sits outside your estate for IHT — this single step is one of the most valuable and most-skipped parts of buying life insurance.
Life insurance and your mortgage
Lenders don't legally require life insurance to get a mortgage in the UK (unlike some countries), but it's strongly recommended if anyone depends on you financially — without it, your family could be forced to sell the home to clear the mortgage after your death. Decreasing term cover matched to your mortgage term and balance is usually the cheapest way to cover this specific risk.
Joint life vs single life policies
A joint life, first-death policy covers two people (e.g. a couple) but pays out only once, on the first death, then ends — cheaper than two single policies but leaves the survivor with no cover afterwards. Two single life policies cost more combined but mean cover continues for the survivor after a claim, and each person can choose their own level and term of cover independently.