Life cover is the one financial product almost everyone agrees they should have and almost nobody enjoys thinking about. So it tends to be bought in a hurry, usually because a mortgage lender or a new baby forced the question, and then never looked at again. That is how people end up paying for the wrong kind, the wrong amount, or a policy that pays out to the wrong place.
This guide walks through the decisions in the order they actually matter.
What life cover is for
Strip away the brochure language and life cover does one thing: it replaces the money you would have provided, for the people who depended on it. A lump sum, paid when you die, so that the mortgage is cleared, the bills keep getting paid, and your family has time to adjust rather than a crisis to manage.
That framing matters, because it tells you immediately who needs it and who doesn’t. If nobody depends on your income and there is no debt that would fall on someone else, you may not need any. If a partner, children or a co-borrower would be in trouble without you, you do.
The two big choices
Term or whole of life?
Term assurance covers you for a fixed period, say 25 years to match a mortgage, and pays out only if you die within it. If you outlive the term, it simply ends and nothing is paid. Because most people do outlive it, it is cheap.
Whole of life covers you until you die, whenever that is, so it will definitely pay out. That certainty costs a great deal more, and it is usually bought for a specific reason, such as leaving money to cover an inheritance tax bill, rather than for general family protection.
For most families with a mortgage and children, term assurance is the right tool. The need is large but temporary: it shrinks as the mortgage is paid down and the children grow up.
Level or decreasing?
Within term assurance:
- Level term pays the same sum whenever you die during the term. Suits an interest-only mortgage, or where you want a fixed amount for the family regardless of timing.
- Decreasing term pays a sum that falls over time, designed to track a repayment mortgage balance. Cheaper, because the insurer’s exposure shrinks every year.
A common structure is decreasing cover matched to the mortgage, plus a separate level policy for the family’s living costs. Two policies, two jobs.
How much is enough?
The rules of thumb, “ten times salary” and the like, are a starting point, not an answer. A better approach is to add up what the money actually has to do:
- Clear the debts that would otherwise fall on someone else: the mortgage above all.
- Replace income for as long as the family would need it. A partner with young children might need most of your income replaced until the youngest is independent. Multiply the annual shortfall by the years.
- Cover the one-off costs: the funeral, a period of no income while things are sorted, perhaps education costs.
- Subtract what already exists: death-in-service benefit from an employer (often two to four times salary, but it ends when the job does), existing policies, savings.
The number that comes out is often higher than people expect, and also often more affordable than they fear, because term cover for a healthy 35-year-old is not expensive. It is worth doing the sum properly rather than guessing.
The mistake that costs families the most: not writing it in trust
This is the part that gets skipped, and it is the part that matters.
If a life policy is simply in your name, the payout becomes part of your estate when you die. Two things follow. First, it can be counted for inheritance tax, which in the UK means anything above the thresholds could lose 40% of its value. Second, it has to wait for probate, which routinely takes months, precisely when the family needs the money most.
Writing the policy in trust fixes both. The policy is held by trustees for named beneficiaries, so the payout goes to them directly, outside the estate, usually within weeks. Most insurers offer a trust form free of charge at the point of sale, and it takes ten minutes. Ask for it. If you already have a policy that is not in trust, it can usually be put into one now.
The rules on trusts, inheritance tax thresholds and what counts as an estate differ between countries, and they change. This is exactly the kind of decision where an hour with someone who knows your situation pays for itself many times over.
Other mistakes worth avoiding
Joint policies that pay once. A joint life policy usually pays out on the first death and then ends, leaving the survivor uninsured, older, and possibly less healthy. Two single policies cost a little more and each pays out independently.
Not disclosing properly. The application asks about health, smoking, occupation and hobbies. Answer fully. A claim can be reduced or refused if something material was left out, and the people finding that out will be the ones you were trying to protect.
Letting it lapse when the mortgage changes. Remortgaging, moving house, or a change in the family are all moments to check that the cover still fits. The policy does not update itself.
Nobody knowing it exists. A policy your family cannot find is a policy that does not pay. Keep the details somewhere they will look. That is one of the reasons we built the Digital Estate Organiser: a place to record what exists and where, so that an executor can find it.
Where to go from here
Life cover is one of three safety nets, and the other two are often more important day to day. Our guide to income protection and critical illness cover covers what happens if you are alive but cannot work, which is statistically far more likely than dying during your working life.
If you would rather talk it through, we offer a free 15-minute intro call and a full hour on your exact circumstances for €75. Guidance, not sales: we do not recommend specific products or providers.
Educational guidance, not regulated financial advice. Tax rules and thresholds differ by country and change over time. Nothing here replaces advice from a regulated adviser who knows your full circumstances.