What is life insurance?
Learn more about life insurance
Key points
- Life insurance pays out a lump sum to your loved ones if you die during the policy term. Some policies may also pay out if you're diagnosed with a terminal illness.
- Costs can vary based on your age, health, lifestyle, cover amount, and policy type.
- Life insurance can help provide a financial safety net for loved ones, with payouts often used towards mortgage payments, household bills, or other living costs.
In this article, when we say 'life insurance' we are talking about term life insurance which covers you for a set period of time and pays out a sum of money if you die whilst you have the policy.
Life insurance is designed to pay out a lump sum if you die while you hold the policy. Many policies also include a terminal illness benefit, which may allow an early pay out if you're diagnosed with a terminal illness and meet the policy's claim criteria. The money can help provide financial support for your loved ones, whether that's helping to pay off a mortgage or maintain their standard of living.
How does life insurance work?
If you’re considering getting life insurance, it’s important to know that there are different products out there, and how they work can vary. So, it’s worth taking the time to assess your financial situation, how much cover you want, and what you want your policy to do.
What does life insurance cover?
Every policy works slightly differently, but in most cases life insurance pays out a lump sum if you die while you hold the policy and covers both natural causes and accidental death. However, some policies may not pay out if death is caused by suicide within a specified period after the policy starts, so it's important to check the terms and conditions.
Some policies also include a terminal illness benefit, which lets you claim early if you’re diagnosed with a condition expected to lead to death within 12 months.
Your loved ones are then able to use the payment however they need, it might be to help towards things like mortgage or rent payments, household bills, or funeral costs.
What are the types of life insurance available?
We also offer different types of term life insurance:
- Decreasing cover
- Level cover
- Increasing cover
Decreasing cover is typically suitable for covering a repayment mortgage, as long as your cover amount stays aligned with your outstanding mortgage balance and term. If you remortgage or change your mortgage terms, review your life insurance.
With level cover, you choose the lump sum amount and how long you want the cover to run. The payout amount stays the same throughout the policy term, although some providers offer the option to increase your cover over time to help protect against inflation.
When you add increasing cover (also known as indexation) to your life insurance policy, your policy amount grows each year. This growth is usually matched to inflation, so it can help the cover keep up with the rising costs of living. Since your cover could go up every year, your payments may also rise.
Find out more in our article: Different types of life insurance.
How much does life insurance cost?
As well as the type of policy you choose, there are several factors that can influence the cost of your premiums. The price you pay usually depends on:
- Age – Policies are typically more expensive as you get older.
- Lifestyle – Drinking heavily, being overweight, or other lifestyle factors can increase premiums.
- Health – Pre‑existing medical conditions may increase your price.
- Family medical history – Serious hereditary conditions can affect your premium.
- Occupation – Hazardous jobs may mean higher premiums.
- Smoker status – This includes nicotine replacement products and vaping.
- Length of cover – Longer terms usually cost more.
- Amount of cover – Higher cover amounts generally mean higher premiums.
When applying, make sure you answer the questions accurately and honestly. If you don't, it could affect whether your insurer pays out the claim on the policy in full as insurers will check the answers they receive.
Why might life insurance not pay out?
Life insurance might not pay out for different reasons. Two common reasons are misrepresentation or non-disclosure, or policy exclusions.
Misrepresentation or non-disclosure is when you take out the policy and have left out relevant medical history, lifestyle details like smoking, or other information requested from you during the application process. If insurers find out later that important details weren’t disclosed, they may reduce or even refuse claims in line with their rules.
Payouts can also be denied if the situation falls under a policy exclusion. Each insurer will have a list of their own exclusions and what those entail, but things like hazardous occupations, or high-risk activities can leave you without payment.
Can I choose who the money goes to when I pass away?
Generally, the answer is yes, but you’ll need to make sure the right arrangements are in place.
If you have a joint life insurance policy, when you pass away the money will usually go to the surviving policyholder – that is, the other person you had the policy with – unless you made other arrangements. If you and your partner separate, you may be able to split your joint policy into single policies.
If you have a single life insurance policy, the money will be paid into your estate. So, it’s very important that you make your wishes known.
If you want to choose a beneficiary (the person who’ll benefit from the lump sum payout) you could consider placing it into a Trust. Here are the potential benefits of doing this:
As the policy is being placed in a Trust, it won’t count as part of your taxable estate when you pass away. This means that any money passed on to your beneficiaries is usually exempt from Inheritance Tax.
The money can reach your beneficiaries more quickly if you appoint additional trustees who then deal with this after you pass away.
You can also make it clear who you’d like to receive the money from your life insurance policy when writing a will. However, this may not be as tax efficient as placing it into Trust.
It's a good idea to seek independent legal and financial advice when thinking about placing a life insurance policy into Trust or writing a will.
Any references to tax treatment are based on Aviva's understanding of legislation and HM Revenue & customs practice at the time of the publication. Both of these are likely to change in the future, and a liability to tax may arise under an existing arrangement. Every care has been taken as to accuracy, but it must be appreciated that neither Aviva nor its representatives can accept responsibility for loss, however cause, suffered by any person who has acted or refrained from acting as a result of material published.
Tax rules depend upon the individual circumstances of each client. If you are concerned about your estate's liability for tax, please consult a professional adviser.
Do I need life insurance?
Whether you need life insurance may depend on your personal circumstances. Do you have people who depend on you financially, like a partner or children? If so, life insurance could help give them a financial safety net if you’re no longer around to provide for them. Payouts from life insurance can be used to help pay off mortgages, cover costs of raising children and for monthly bills. If you haven’t made any provisions for your loved ones in case you pass away, you might want to think about getting life insurance.
How does Aviva life insurance work?
At Aviva, one type of life insurance product we offer is the Life Insurance Plan, which is a type of term life insurance. It covers you for a set period of time, known as the policy term, which can be between 5 and 50 years. It pays out a lump sum if you pass away while you hold the policy.
When choosing your policy term, you may want to consider how long is left on your mortgage or when your children are likely to become financially independent.
What other Aviva life insurance is available?
As well as our Life Insurance Plan, there are also a few other options when it comes to life cover:
- Over 50s Life Insurance – Designed for individuals aged 50 and above. Provides a fixed lump sum after you die to provide your family with help at a difficult time.
- Free Parent Life Cover – Get started helping to protect your family with £15,000 of free life cover available to all parents for each of their children under the age of four, for one year.
These are not savings or investment products and they'll only pay out on a successful claim.
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