How Much Does Life Insurance Cost?

Life insurance can cost as little as £5 per month but, like any kind of insurance policy, the cost of cover depends on how likely you are to make a claim. The more likely a claim, the more expensive the premiums.

With life insurance it’s mainly your age, health, occupation and lifestyle that determine how risky you are, and what your premiums cost. The type of policy you buy and how you choose to make payments also has an effect on how much you’ll pay.

Here’s a look at how life insurance pricing works.

Types of life insurance policy

The cost of life insurance depends, in part, on the type of policy you have.

First of all, you need to choose between term life insurance, which pays out if you die within a set number of years, and whole life life insurance, which pays out whenever you die.

The latter is more expensive but guaranteed to pay out eventually, whereas term life insurance is cheaper because it only has to pay out if you die during its term. Whole of life insurance is often bought with tax and estate planning in mind. Term insurance is a pure ‘protection’ play designed to provide funds for your dependents if you die prematurely.

When it comes to term cover, you have a choice between three types of policy: decreasing term, increasing term and level term.

With a decreasing term policy, the payout your loved ones would receive in the event of a claim goes down over time. The idea is that the payout amount decreases in line with your mortgage balance as you pay it down.

The reduced amount of cover you are paying for relative to other types of policy make decreasing term a cheaper option.

As the name suggests, increasing term insurance does the opposite of its decreasing term cousin, offering a payout that grows over time to take account of inflation and help with your family’s growing commitments. 

This might include expenses such as school fees. With an increasing term policy, your premiums are reviewable and can be increased during the policy.

Level term life insurance offers the same potential payout for the duration of the policy, regardless of when it’s redeemed. This figure therefore doesn’t take account of inflation, so the sum insured will likely be worth a lot less in real terms after, say, 25 years of rising prices.

Some policies are renewable, which means you can renew them once their initial term ends. Others are reviewable, which means your premiums and payout can be intermittently reviewed by your insurer. 

Finally, some policies are convertible – term life insurance policies that can be converted into whole life policies.

If you have a partner, you also have the option of buying a single policy each, or a joint policy covering both of you.

A joint life policy can be more cost effective, but you’ll need to consider whether you need a first-death policy, which pays out when one of you dies – effectively ending the policy – or a second-death policy, which only pays out after you’ve both died.

A first-death policy is likely to be cheaper, but remember that the surviving policyholder will be left with no cover following the payout, and they’ll be older at that point, making a new policy more expensive.

How to calculate your life insurance premium

No two policyholders with the same type of policy will pay the same premiums, because so much of the cost is based on personal circumstances.

For example, someone who takes out a policy in their fifties is likely to pay more than someone in their twenties because they’re statistically more likely to develop health issues. By the same logic, a healthy person is likely to enjoy cheaper cover than someone with existing health problems.

Lifestyle is also a factor. Those who smoke and/or drink an above average amount of alcohol are likely to pay more for cover than someone who doesn’t smoke or drink because they’re more likely to develop health concerns.

What you do for work can impact your premiums too. Some jobs are inherently more risky than others. A firefighter or police officer, for example, might have to pay more for cover than a cleaner or a receptionist.

Life insurance providers may even factor in your height and weight when calculating your premiums, using it to calculate your body mass index (BMI).

Finally, and crucially, the sum insured has a big impact on your premiums. Broadly speaking, the larger the payout you’d need to cover your commitments, such as your mortgage, the more you can expect to pay in premiums.

Taken all together, these attributes create a risk profile that the insurer will use to calculate how much to charge you for life insurance.

Getting the best price

A price comparison service is the easiest way to see which providers offer the best value cover. Our life insurance comparison tool will not only show you how much cover costs, but also what’s included in the policy – helping you balance protection and price.

You’ll also be able to weigh up the costs of optional extras such as income protection and critical illness cover.

Finally, we’ve ranked what we consider to be the five best life insurance providers based on typical premiums for a level term policy, percentage of claims paid out and customer service scores.

Average cost of life insurance

It is difficult to give an average figure for the cost of life cover because, as we have outlined, policies are priced based on individual risk and personal circumstances. However, insurers will take into account the following factors when working out your premium:

• Your age
• State of health and lifestyle (including your BMI, for example, and whether or not you’re a smoker or vaper)
• Any pre-existing health conditions, such as high blood pressure, and family history of any particular conditions
• The level of cover and type of policy
• The term, or length of time, of the cover
• Your job (this may increase your premium if you work in a job or industry considered to be higher risk by the insurer).

By way of illustration, our research found premiums starting from as little as around £8 per month for a single, healthy 30-year old with no medical or health conditions and a non smoker. This was for level term life cover of £200,000 over 25 years.

How much life insurance do you need?

The amount of life insurance cover you need depends on a range of factors which are specific to you and your dependents.

But to get an idea you’ll first need to work out the annual income and your debt commitments, such as the mortgage, car loans and credit cards. Then think also about how much money your family would need to live on comfortably without you and for how many years they might need that financial support.

Our life insurance calculator is a handy tool that can help you more accurately work out the right level of cover for you and your family.