How does life insurance work?

Most life insurance policies in the UK work by the insurance company agreeing to pay a lump sum to the policyholder's beneficiaries if the policyholder dies. Every month, the policyholder pays premiums to the insurer, which the insurer uses to cover the cost of pay outs to policyholders who die.

What does life insurance cover?

The main benefit of life insurance is that it can provide financial security for the policyholder's loved ones in the event of the policyholder's death.

Life insurance typically covers the costs of funeral expenses and any debts the policyholder may leave behind, as well as providing a financial safety net for the policyholder's loved ones.

That's how life insurance helps families. People with no children or other dependents generally don't need life insurance.

What are five things not covered by life insurance?

There are a few things that life insurance typically does not cover, including:

• Suicide (if it occurred soon after the policy was taken out
• Self-inflicted injuries
• Deaths due to risky behaviour
• Claims made within the "waiting period" for whole of life policies
• Deaths due to pre-existing medical conditions which were excluded from the cover at the time it was bought

You can read more about when life insurance companies don't pay claims here.

Why is life insurance important?

Life insurance is important because it can help to protect the financial wellbeing of the policyholder's loved ones in the event of the policyholder's death. A life insurance policy can provide peace of mind and financial security for the policyholder's family.

Read more in our simple guide to the basics of life insurance.

Can you use life insurance while you are still alive?

Most life insurance policies cannot be used while the policyholder is still alive. However, there are some policies, known as whole of life insurance policies, that do allow the policyholder to borrow against the death benefit.