Life Assurance

Making sure the people you love are not left financially stranded after you’re gone

TL;DR - Life Assurance in a Nutshell ⏱️

  • Pays a lump sum (or regular income) if you die during the policy term

  • Commonly used to clear a mortgage, replace lost income for your family, or help with inheritance tax

  • Premiums are usually paid monthly

  • Can be written in trust so the money reaches the right people quickly and (in many cases) outside your estate

Why Life Assurance Matters ❤️

It's a difficult thought but we will all die one day. The last thing most of us want is for our family to face financial pressure on top of grief — especially if there is still a mortgage, loans, or living costs to cover.

Life assurance provides a financial safety net. It cannot replace you, but it can act as a final act of care: giving the people you love breathing room when they need it most.

Quick note on terminology:

  • Assurance traditionally refers to events that will definitely happen (death).

  • Insurance refers to events that might happen.

In everyday use these two words are often used interchangeably.

The Main Types of Life Assurance 📋

Term Assurance ⏳

Pays out only if you die within a set period (the “term”). If you survive the term, there is normally no payout.

There are three common versions:

  • Level term – The payout amount stays the same throughout the term.

  • Increasing term – The payout rises each year (either by a fixed percentage or in line with inflation).

  • Decreasing term – The payout falls over time, usually to zero, by the end of the term. For example mortgage protection, where the amount assured reduces roughly in line with a repayment mortgage.

These are some useful extras that can be added to term policies so look out for these features:

  • Renewable - you can take out a new policy at the end of the term without medical underwriting (though the premium will be higher)

  • Convertible - you can switch to a whole-of-life policy later

  • Reviewable - the insurer can review the premium after a set number of years.

Whole of Life ♾️

Designed to pay out whenever you die, as long as you keep paying the premiums.

Modern whole-of-life policies usually have no "cash-in" (aka "surrender") value, which allows insurers to offer lower premiums than older-style policies that built up a cash value.

Family Income Benefit (FIB) 👨‍👩‍👧‍👦

Instead of a single lump sum, this pays a regular income from the date of death until a chosen end date (often when the youngest child is expected to finish education).

The total amount paid out is higher if death occurs early in the term and lower if it occurs later.

The income can usually be taken as a lump sum if preferred.

Pension Term Assurance 🏦

A small number of older policies still exist that were linked to pensions and received tax relief.

New versions of this type of cover are rare and tightly restricted. Most people now simply take out ordinary term assurance.

Joint Life vs Single Life👥

  • Single life (Own Life) – Pays out on the death of one person. Can be written in trust for beneficiaries.

  • Life of Another – One person owns a policy on someone else’s life (you need something called an “insurable interest”). This policy is more common in business protection if a business partner dies.

  • Joint Life First Death – Pays out when the first of two people dies, then the policy ends. Cheaper than two separate policies but can leave the survivor without cover.

  • Joint Life Second Death (Last Survivor) – Only pays out after both people have died. Often used for inheritance tax planning and is usually written in trust.

How Much Cover Do You Need? 🧮

There is no single right answer to this, but here are some key questions for you to work through:

  • Who needs to be covered (you, your partner, or both)?

  • How much is needed? (mortgage, other debts, emergency fund, inheritance tax)

  • How much income would your family need, and for how long?

  • How long does the cover need to last? (e.g. until the mortgage is paid off or children finish education)

  • Should the policy be written in trust?

  • Do you already have any cover through work (death-in-service) or existing policies?

A simple starting point many people use as a rule of thumb is 10–12 times their annual income, adjusted for debts and existing cover.

How Claims Work 📄

There are two ways that claims work with Life Assurance:

On death - Either the person making the claim contacts the insurer, or the solicitor dealing with the estate does. They will need:

  • The original death certificate

  • Proof of identity and their right to claim (e.g. as trustee or executor)

  • Details of the policy

The insurer then pays the sum assured (usually within a few weeks once paperwork is complete).

On maturity - For policies that have an end date and a survival benefit, the insurer normally writes to the policyholder a month or two before the end date.

Tax Treatment (High-Level) 💷

Premiums (fees) paid by individuals are not usually tax-deductible.

The lump sum paid out on death is normally free of income tax and capital gains tax.

With regards to Inheritance Tax (IHT):

  • If the policy is written in trust, the proceeds usually fall outside your estate and can avoid IHT and probate delays.

  • If the policy is not in trust, the money forms part of your estate and may be subject to IHT.

Always check your own policy wording and discuss with a financial advisor if unsure!

Trusts – Why They Are Useful 🔒

Writing a life policy in trust means the money goes directly to the people you choose, via the trustees rather than into your estate.

This has several benefits such as:

  • Faster payment (avoids waiting for probate)

  • Can keep the money outside your estate for IHT purposes

  • Gives you more control over who receives the money and when

Most modern term assurance policies can be written in trust from day one at no extra cost.

Trusts can be complicated so speak with a financial advisor if unsure and if a trust is the right approach for you.

Common Mistakes & Things to Watch ⚠️

  • Not putting the policy in trust (if needed)

  • Assuming workplace death-in-service cover is enough on its own

  • Taking a joint-life first-death policy when the survivor will still need cover

  • Forgetting to review the amount of cover after big life changes (house move, children, divorce, pay rise)

  • Choosing decreasing term for a mortgage but later switching to an interest-only mortgage

  • Cancelling an old policy before a new one is fully in force

Action Steps 💡

Now that you know a little more about Life Assurance, here is your homework:

  • List everyone who depends on your income and what financial needs they would have if you died.

  • Check any existing cover (work death-in-service, old policies, savings).

  • Decide whether you need a lump sum, a regular income, or both.

  • Choose the right type and term of cover.

  • Strongly consider writing the policy in trust.

  • Get quotes from more than one provider (or speak to an adviser) and compare like-for-like.

  • Review the cover every few years or after any major life change.

It's not the most glamorous of subjects but nonetheless, a very important one. Take care of your loved ones - you've got this!