With all kinds of life insurance companies offering a range of policies, how do you find the one that's most suitable for you?
While it may be tempting to just go with the most competitive quote, it might not be the best choice for your circumstances, which is where the expertise of an Independent Financial Adviser (IFA) can really help.
Here’s an introduction to the different kinds of life insurance, and why finding the best policy for you usually isn’t as simple as just browsing a comparison site.
What should I be looking for in a life insurance company?
Life insurance is designed to give you peace of mind so that if something happens to you, your loved ones will receive a lump sum to help manage the family finances.
You pay regular premiums on a monthly or annual basis, and, in return, the life insurance company promises to pay out a cash sum if you die while the policy is active, as long as you meet all of its terms and conditions.
Choosing the best life insurance policy should be based on quality and suitability, not cost.
Look for providers with positive reviews for handling claims and pay-outs professionally and promptly, as rated by an independent financial services review firm, such as Fairer Finance.
It’s important to be clear about what type of life insurance policy you need, as there are several types of policy available.
The main types of life insurance include:
Level term life insurance
This runs for a fixed period (known as the 'term' of your policy) – such as five, ten or 25 years – and only pays out if you die during the time the policy is active.
There's no lump sum payable at the end of the policy term.
Decreasing term life insurance
The amount of cover decreases over time and is often used to cover a debt that will reduce over time, such as a repayment mortgage.
Whole of life insurance
This pays out no matter when you die as long as you keep up with your premium payments.
Life insurance with critical illness cover
The best life insurance companies will cover you if you die or are diagnosed with a terminal illness (with a life expectancy of fewer than 12 months) during the policy's term.
Over 50s life insurance
This is available for everyone aged 50 to 80 and doesn't require any medical questions or assessments.
Premiums are usually fixed and will stop at the age of 85 or 90, with cover continuing for the whole of the policy holder's life.
Funeral cover
This pays out a lump sum when you die to cover your funeral expenses.
How can an IFA help me find the best life insurance company for my needs?
Because there are so many factors to consider when spending your money on a life insurance policy, it can be beneficial to speak to an independent financial adviser (IFA).
You can discuss key points to determine the type and amount of cover you need, such as:
- How many people are financially dependent on you?
- How much would your death impact them financially?
- Do you have an outstanding mortgage?
- Do you or your family have other debts?
- Do you have any savings your family could use?
- Is there any future spending you need to plan for, such as education costs for your children?
- What unforeseen costs might arise, for example, the cost of arranging a funeral?
- What death-in-service benefits does your employer offer (if any)?
All of this is important, not least because, as life insurance is designed to pay out in the event of your death, you won't see a penny of the money you pay into the policy – unless you're diagnosed with a critical illness, and this is included in your cover.
That's why it pays to seek independent advice from a professional who has the expertise and knowledge to find the best options for you.
IFAs always carry out a 'fact find' where they ask you detailed questions about your circumstances, concerns, goals, and plans.
From this information, they can recommend products that meet your needs and are most suitable for your particular situation.
IFAs may also have access to a broader range of choices that you wouldn't be able to assess realistically on your own.
Essentially, professional advice could help you buy a better product than one you choose yourself.
A protection specialist can even help you find affordable cover if you’ve been refused it by other (e.g. if your health is poor or your job is dangerous) as in this example.
What are the 10 biggest life insurance companies?
Here's a snapshot of some of the UK's biggest and best-known life insurance providers:
Aviva
Aviva is the largest general insurer and a leading pension provider in the UK with 15 million customers.
Flexible life protection is available from just £5 a month, which pays out a cash lump sum if you pass away or are diagnosed with a terminal illness.
There's a combined cover option for you and your partner via either a joint or separate policy.
The firm paid out 98.6% of life insurance claims in 2019.
Legal & General
Established in 1836, Legal & General is one of Europe's largest insurance and asset management groups, helping over 10 million people with savings, retirement, and life insurance, with 97% of claims paid out.
Life cover starts from £6 a month, and premiums will not change unless you alter your policy.
You have the option to add critical illness cover when you take out a life insurance policy.
Additional benefits, such as accidental death benefit, are included at no extra cost.
LV/Liverpool Victoria
Founded in 1843, LV is one of the UK's largest insurance companies, with more than 1.3 million members.
It's a mutual company, which means it’s not owned by private shareholders, and profits are reinvested to generate future growth for members.
In 2015, it was ranked as the best insurance business in the UK for customer satisfaction and seventh-best across all UK businesses by the UK Institute of Customer Service Satisfaction Index.
Life cover starts from £5 per month, with terminal illness cover included at no extra cost. In 2019, LV paid out 99% of life insurance claims and 88% of critical illness claims.
Scottish Widows
Located in Edinburgh, Scottish Widows has been providing financial services to the UK market since 1815. It's part of Lloyds Banking Group, which offers financial services products to more than 30 million UK customers.
The firm provides flexible life cover plans that you can update if your circumstances change.
Additional practical and emotional support services are available through Scottish Widows Care.
In 2018, Scottish Widows paid out 99% of life insurance claims and, since January 2000, it has paid a total of £2.7 billion in claims, helping more than 95,000 customers.
Royal London
Founded in 1861, Royal London is the largest mutual life, pensions, and investment company in the UK.
It holds the Platinum Trusted Service Award for consistently delivering excellent service (Feefo).
Payments start from £7 per month with terminal illness cover included at no additional cost, plus there's an option to add a serious illness benefit for you and your children.
Royal London paid out 94.3% of life insurance claims and 92.6% of critical illness claims made in 2019.
Sun Life
Operating since 1810, Sun Life is best known for its range of services for people aged 50 and over.
Its over 50s life insurance is designed to help cover funeral costs or leave a cash gift for loved ones.
Guaranteed acceptance, affordable premiums that never rise and 100% of claims paid are rated as five-star features by Defaqto.
The average pay out is more than £4,000.
Zurich
A global insurance provider headquartered in Zurich, Switzerland, life cover starts from £5 a month.
The Zurich Life Protection policy can offer life cover and critical illness, with optional cover available for broken bones, dislocations, and ligament damage. Customers also have access to Zurich Support Service.
In 2019, the company paid out 99% of all death claims and 90% of all critical illness claims.
Canada Life
Based in Winnipeg, Manitoba, Canada Life supports over 2.75 million people in the UK and provides a range of life cover options, up to the value of £1 million.
Also included is unlimited access to a 24/7 bereavement helpline, practical and emotional support from its personal nurse service and expert guidance if you're appointed to administer someone's estate.
Cover starts from £5 a month. In 2017, the firm paid out on 99.8% of claims, amounting to £252 million in life insurance and £21 million in critical illness.
Beagle Street
Beagle Street started trading in 2012 to allow people who have experienced a major life moment, such as buying a house, getting married, or having a baby to quickly get affordable life insurance.
Critical illness and child critical illness cover can be added, and accidental death benefit is included along with a free will writing service.
In 2019, 99.5% of claims were paid out.
If your loved ones make a valid claim on your life insurance policy, the company will pay them up to £5,000 to help with funeral costs before they receive your remaining cash pay-out.
Aegon
Founded in 2008, Aegon is a global company with over 3.9 million customers in the UK.
It offers a variety of policies, including life insurance with critical illness protection, along with a health and wellbeing service offering:
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counselling and legal support
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a second medical opinion service with a local UK-based specialist
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a funeral payment pledge offering an advance claim payment of up to £10,000 towards funeral costs
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a choice between a lump sum and monthly payments after a claim.
In 2019 Aegon paid 96% of life protection and 94% of critical illness protection claims.
What other types of insurance might I need?
Life insurance usually only covers you for death.
You'll need a different type of income protection – such as critical illness cover – if you want cover for illness or disability.
Other protection policies include:
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Income protection insurance – This type of insurance provides regular payments if you're unable to work due to illness or injury.
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Critical illness insurance – This type of policy will provide you with a tax-free lump sum if you're diagnosed with a serious illness covered by your policy.
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Payment protection insurance – This will help you keep up with payments if you can't work because you're ill, had an accident or have been made redundant.
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Short term protection insurance – This provides short term cover to help you pay for essential outgoings if you find yourself unable to work.
Learn more: income protection vs critical illness, what's the difference?
Every life insurance policy has its own terms and exclusions, but a specialist life insurance financial adviser will be able to explain these to you to help you make the best choice.
