How life insurance works in the UK is simple at the core: you pay a regular premium to an insurer, and in return the insurer pays a lump sum to the people you nominate when you die. That payout is free of income tax, but it can be pulled into your estate for inheritance tax if the policy isn’t set up correctly. UK life insurers are regulated by both the Prudential Regulation Authority and the Financial Conduct Authority, and if your provider fails, the Financial Services Compensation Scheme covers your policy in full with no upper cap.
Term Cover or Whole-of-Life
Policies fall into two broad shapes. A term policy covers you for a set number of years you choose up front, often 10, 20, or 25. If you die during that window, the insurer pays out. If you outlive the term, the policy simply ends and nothing comes back to you.1Legal & General. What Happens at the End of Your Term Life Insurance Policy?
Term cover comes in three main variations. Level term keeps the payout the same from start to finish. Decreasing term shrinks the payout over time, usually matched to a repaying mortgage so your cover tracks what you still owe.2Legal & General. Choosing the Right Length of Time for Your Life Insurance Cover Increasing term grows the payout each year, typically linked to RPI, CPI, or a fixed percentage between 1% and 5%, with premiums rising to match.
Whole-of-life cover has no end date. As long as you keep paying, the insurer will pay out whenever you die. That certainty of a claim makes these policies significantly more expensive than term cover, and they’re often bought specifically to fund a future inheritance tax bill.
Couples sometimes buy a single joint policy rather than two individual ones. A first-death joint policy pays out when the first partner dies, then ends; the surviving partner is left without cover and would need to buy a new individual policy at a higher age-based premium. A second-death policy pays only after both partners have died, which is used mainly for inheritance tax planning because the IHT bill crystallises on the second death.
What Drives Your Premium
Insurers price your policy by estimating how likely they are to pay out, and when. The further off that risk looks, the less you pay. Age is the single biggest factor: a 30-year-old will almost always pay less than a 50-year-old for the same cover. Health history matters too, so conditions like high blood pressure, diabetes, or a history of heart disease push premiums up.
Smokers and recent ex-smokers pay substantially more, and most insurers treat you as a smoker if you’ve used any nicotine product in the past 12 months. Occupation plays in where there’s elevated physical risk, such as offshore oil and gas work, commercial fishing, or high-altitude construction.3Legal & General. High Risk Life Insurance The sum assured drives the rest: £500,000 of cover costs more than £100,000, and whole-of-life costs more than term because the insurer knows a claim is coming eventually.
What Isn’t Covered
No policy covers every death from day one. Most UK insurers include a suicide exclusion lasting the first 12 to 24 months. If the policyholder dies by suicide inside that window, the insurer will typically refuse the claim. After the exclusion period passes, suicide is normally covered like any other cause of death, provided premiums are up to date.
Hazardous hobbies can create problems too. Mountaineering, paragliding, canyoning and similar activities may lead to exclusions, higher premiums, or both, with insurers assessing frequency and experience case by case.3Legal & General. High Risk Life Insurance If you take one up after the policy starts, check whether you need to tell your insurer.
Your Duty of Honest Disclosure
Under the Consumer Insurance (Disclosure and Representations) Act 2012, you must take reasonable care not to misrepresent your circumstances when you apply. You don’t have to volunteer information the insurer hasn’t asked about, but you can’t give misleading answers to the questions they do ask. If the insurer later finds a deliberate or reckless misrepresentation, it can void the contract and refuse all claims without refunding your premiums. Even a careless mistake can reduce the payout or change the terms.4legislation.gov.uk. Consumer Insurance (Disclosure and Representations) Act 2012 Checking your GP record before applying is worth the effort, because a diagnosis from a decade ago may not sit in your memory the way it sits in the file.
Genetic Testing
One boundary worth knowing: under the UK’s Code on Genetic Testing and Insurance, insurers cannot require you to take a predictive genetic test as a condition of cover. If you’ve already had one voluntarily, the only result an insurer can ask about is a predictive test for Huntington’s disease, and only where life cover exceeds £500,000 per person.5GOV.UK. Code on Genetic Testing and Insurance: 3-Year Review 2025 At or below that sum assured, your genetic test results are off limits. A favourable result can still be taken into account in your favour at any level of cover.
From Application to Active Policy
You can apply through an independent broker, a bank, or directly on an insurer’s website. Expect to provide ID, your GP’s name and address, a medical history covering past surgeries, chronic conditions and family patterns, and lifestyle details including alcohol consumption and high-risk hobbies.6GOV.UK. Know Your Customer Guidance, Accessible Version
The underwriting team then reviews your answers against the insurer’s risk criteria. Straightforward applications from younger, healthy people can clear quickly. Larger sums or disclosed conditions trigger extra evidence, which can include a GP questionnaire, a nurse screening of height, weight, blood pressure and a urine sample, and sometimes blood tests covering liver function, cholesterol and blood sugar.7Legal & General. Medical Evidence for Underwriting You then get a formal offer with your final premium and any specific exclusions, and the policy goes live once you accept and the first premium clears.
Once the policy starts, you have 30 days to cancel without penalty under FCA rules, and any premiums paid during that window must be refunded.8FCA. COBS 15 Annex 1 Exemptions From the Right to Cancel After the 30 days you can still cancel at any time, but you won’t get your premiums back on a standard term policy.
Add-Ons Worth Knowing About
Many UK policies let you bolt on extra protection. Critical illness cover pays a lump sum if you’re diagnosed with a specified serious condition during the policy term. The three core conditions every critical illness policy must cover are cancer, heart attack, and stroke, which together account for the large majority of claims.9Association of British Insurers (ABI). ABI Guide to Minimum Standards for Critical Illness Cover Beyond those, the list varies between providers, so comparing policy documents matters.
Many term and whole-of-life policies also include a terminal illness benefit at no extra cost. If you’re diagnosed as terminally ill and given less than 12 months to live, the insurer pays out the full sum assured straight away rather than waiting until death, and you keep the payout even if you live longer than the prognosis. Not every provider includes this automatically, so check the policy wording.
Tax and Writing the Policy in Trust
Life insurance payouts aren’t treated as income, so beneficiaries pay no income tax on them. The real tax issue is inheritance tax. If your policy isn’t written in trust, the payout is added to your estate, and any estate above the £325,000 nil-rate band is taxed at 40% on the excess.10GOV.UK. Inheritance Tax Nil-Rate Band and Residence Nil-Rate Band Thresholds From 6 April 2026 A qualifying estate that includes a family home passed to direct descendants can use the residence nil-rate band to shield up to £500,000 per person, or up to £1 million for a surviving spouse or civil partner.
Writing the policy in trust is the standard way to keep the payout out of the estate entirely. The proceeds then belong to the trust rather than to you, so HMRC doesn’t count them when valuing the estate. Two practical benefits follow. Your beneficiaries avoid inheritance tax on the payout, and they can access the money as soon as the insurer settles the claim rather than waiting for probate. Most insurers provide their own trust forms at no charge, and you can usually complete them when you take out the policy.
Making a Claim After a Death
Beneficiaries should contact the insurer as soon as practical after the policyholder dies. You’ll need the policy number, an original or certified copy of the death certificate, and proof of your own identity. The claims team then verifies the circumstances of death against the policy terms and checks for any applicable exclusions.
Once the insurer has everything it needs and approves the claim, payment is usually quick. LV=, for example, says funds clear within three to five working days of a claim being agreed.11LV=. When Will I Receive Payment for My Life Insurance Claim? The slower part is gathering documents and the insurer’s review, which can take a few weeks in more complex cases. Payment goes by bank transfer to the named beneficiaries, or to the estate’s executors if the policy wasn’t in trust.
If Something Goes Wrong
UK life insurers are dual-regulated. The Prudential Regulation Authority oversees their financial soundness, while the Financial Conduct Authority regulates how they treat customers.12GOV.UK. Life Insurance Regulation: Solvency II, PRA and FCA If an insurer fails, the Financial Services Compensation Scheme covers long-term insurance, including life insurance, at 100% of the claim with no upper cap.13FSCS. What We Cover Bank deposit protection is capped at £85,000 per person; a life insurance payout is fully protected.
If an insurer rejects a claim and you think the decision is wrong, complain to the insurer first. If you don’t get a satisfactory response within eight weeks, or you receive a final response letter you disagree with, you can refer the complaint to the Financial Ombudsman Service within six months of that letter.14Financial Ombudsman Service. How to Complain The service is free, and the Ombudsman can order the insurer to pay the claim if it finds in your favour.