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Life insurance – assessing the costs

Life insurance – assessing the costs

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Last updated: 01 June 2021

Whilst life insurance may seem like another bill that you could do without, it can make a huge difference to your family if the unthinkable were to happen. Life insurance can give you peace of mind, knowing that you’ve protected your family’s future no matter what happens to you. It is cheaper the younger and healthier you are, and the shorter your policy’s term is. As you get older, buying life insurance will get more expensive.

How much does life insurance cost?

The cost of life insurance depends on lots of factors, so there isn’t really an average cost to it because everyone’s situation is different. Life insurance rates are first and foremost based on life expectancy, so many factors determine the rate that you’ll be offered. These include gender, age, health and whether you smoke. Therefore, it’s best to buy life insurance as early as you can. The longer that you wait, the more your rates will go up based on your age.

Which conditions affect the cost of life insurance?

There are a number of personal risk factors that impact on life insurance. Most life insurance providers will review these before giving you a policy quote. These are the eight most common risk factors that can increase your life insurance costs:

  • Age: the older you are, the more expensive life insurance will be.
  • Whether you smoke: smoking increases the risk to your health, so will typically raise your life insurance rates.
  • Personal health conditions: poor health equals higher risk for your insurer, driving up your rates.
  • Family health history: if you have a history of health issues in the family that you are at risk of developing in the future, this will increase costs.
  • Occupation: If your job has a high hazard risk (e.g. you work in construction) this can put your rates up.
  • Hobbies and travel: if you have a history of risky activities such as high-risk extreme sports, this can increase costs.
  • Lifestyle: a pattern of risky or unhealthy activity can impact on your costs in the long-term.

Before the European Court of Justice gender directive in 2012, your sex would have a big impact on your insurance premium. On average, women live longer than men, so they used to have cheaper life insurance premiums. However, it is now illegal to take gender into account when calculating life insurance. It is uncertain whether this will be upheld in UK legislation post-Brexit.

Are there other factors that affect the cost of life insurance?

As well as personal risk factors, there are factors to do with your specific life insurance policy that determine the cost of your premiums.

The Size of Your Death Benefit

The larger the death benefit there is on your policy, the higher your premium will be. However, the rate of increase goes down with higher rates. For example, the monthly premium for a £250,000 policy might be £87. The premium for the same person on a £1 million policy might be £218.94. Although the death benefit is four times bigger on the second policy, the premium cost is just over double.

The Length of Term

Generally, the longer the term is, the more expensive your premium will be. This is because the longer the term of your policy is, the more likely it is that the insurance company will have to pay out your death benefit. Additionally, longer-term policies must also cover higher age brackets. For example, a 30-year term policy that you take out aged thirty will become high risk when you’re fifty and still covered by that policy.

Your Income

The insurer will ask you how much you earn, so that they can work out whether you’ll be able to afford your mortgage repayments. If you withhold any vital information or give false information, this could invalidate your life insurance policy should you need to make a claim.

Your Choice of Premium

There are two different types of life insurance premium available:

  • Guaranteed premiums: When your policy has been accepted, your life insurance provider guarantees that your premiums won’t increase during the policy term.
  • Reviewable premiums: You agree that your life insurance provider can review your policy at set intervals, and so your premiums could go up or down.

In the short term, reviewable premiums usually work out cheaper. However, they can become more expensive over time because they are likely to increase at regular intervals. For example, you will inevitably get older. Your reviewable premium would increase to reflect this. Other factors like ill health would also increase your premium.

How much cover do I need?

How much cover you need depends on your lifestyle and family size. There are a number of factors worth considering when deciding how much cover you need. The more cover you need, the higher your premiums will be.

Outstanding Debts

If you have a large amount of debt, you probably want your cover to reflect this. Otherwise, the burden of your debts could fall on your loved ones. For example, mortgage life insurance is designed to cover your remaining mortgage debt, so will decrease over time to reflect your repayments.

Number of Dependents

How many people rely on your income for financial support plays a big role in how much protection you will need. Your life insurance should enable your spouse and children to continue living the life that they’re used to. If you have young children, you may want to provide them with financial protection until they leave higher education. For example, you might want peace of mind that your children will be able to complete their university education without financial burden.


It obviously costs a lot to raise children, but if you have young children, it’s not just your income that would be missed. It’s wise to consider the other responsibilities you have as a parent, for example if alternative childcare arrangements would need to be made if you passed away.


Another important cost to consider should you pass away is that of your funeral. With the average cost of a funeral in the UK above £4,000 (source: Money Advice Service), paying for your burial or cremation can be a significant financial burden on your loved ones. However, a life insurance policy can give you peace of mind that these costs will be covered. For more information, check out our guide on funeral costs

How can you improve your life insurance estimate?

If you want to get cheaper life insurance premiums, you may need to do some projections towards the time when you’ll take out your policy. For example, most insurers will need you to have quit smoking at least a year before you take out your policy for it to be reflected in your premiums. Quitting the week before will make no difference.
This same logic applies to all of your lifestyle habits. If you were to reduce your alcohol intake or achieve a healthier weight, the amount that you’d pay for premiums would go down. But you must do this before you take out your policy, as it’s really difficult to alter the size of your premiums once you’ve taken out a policy.
Lifestyle habits are things that you can control. Other things, like your age and family medical history, can’t be changed. While it’s best to take out life insurance when you’re younger, term life insurance policies have a defined lifetime. So, taking out a thirty year policy when you’re eighteen maybe isn’t the best idea.


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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.

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