Life insurance is a contract, and how it works is simple: you pay a regular premium, and the insurer pays out a cash sum if the person covered dies while the policy is running. MoneyHelper (archived August 2025) says it "pays out either a lump sum or regular payments on your death, giving your dependants financial support after you’ve gone." Below is how premiums, the policy and the payout fit together.
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How does a life insurance policy work?
Three things make up every policy: the cover amount you choose, the period it lasts, and the premium you pay to keep it going. Legal & General’s policy terms (QGI12849, October 2026, the version it sells direct) describe a Life Insurance policy as one that "is designed to provide cover if the life insured (the person/s covered by this policy) dies or is diagnosed with a terminal illness before the end of the policy." How much is paid turns on the level of cover you buy.
Premiums are paid monthly or annually. Stop paying, or cancel, and the cover ends with no money back, according to Aviva’s Life Insurance+ summary (AL50001, February 2026, held in its adviser document library). For the cancellation window, missed payments and refunds, see what happens if you cancel life insurance.
When a valid claim is paid the policy ends. Legal & General’s terms say a valid claim, on the death of the life insured or their diagnosis with a terminal illness within the term, brings a lump sum, after which the policy ends.
What does life insurance cover, and what does it not?
Life cover is a response to a death, not a general health or income policy. The guide quoted above is direct about the line: "Life insurance pays out when you die – not when you lose an income due to illness or disability." For that second situation see how income protection, critical illness and life cover differ.
The cover is also not unconditional. Four conditions run through that guide and the insurers’ own documents:
- The policy has to be running. A fixed-term policy stops at the end of its term, and a term policy pays only on a death during the policy. Whole of life cover has no end date, so, in the guide’s words, it pays out "no matter when you die, as long as you keep up with your premium payments".
- The answers you gave must be right. Aviva’s summary says you must answer health and lifestyle questions fully, truthfully and accurately, and that if you do not it may amend or cancel your policy or decline to pay a claim. See what you must disclose.
- Exclusions apply. The guide warns that "definitions and exclusions (what isn’t covered) can vary between different insurers". Aviva’s policy, for example, will not pay out if you die by suicide or from intentional self-inflicted injury in the first 12 months of the policy term. Wording differs by insurer; see does life insurance cover suicide. Samaritans listens to anyone who is struggling, free on 116 123, at any time of day or night.
- Add-ons are separate benefits. Aviva says "both kinds of cover include terminal illness cover", and Legal & General says critical illness cover "can be added for an additional cost". How that works is in life and critical illness cover and terminal illness benefit.
What are the main types of life insurance?
Legal & General’s guide to types (19 June 2026) says "in broad brushstrokes, there are two main types of life insurance: term life insurance and whole of life insurance." Within term cover the difference is what happens to the payout over time. The table uses Aviva’s summary for the term rows and the MoneyHelper guide for whole of life; each type has its own guide under how life insurance works.
| Type | How long it lasts | What happens to the sum | Where to read more |
|---|---|---|---|
| Level term | A fixed period | Stays the same to the end | Level term |
| Decreasing term | A fixed period | Reduces each month, usually to track a repayment mortgage or loan | Mortgage life insurance |
| Increasing term | A fixed period | Can rise each year, and the premium may rise too | Increasing term |
| Whole of life | The rest of your life | Paid whenever you die, if premiums are kept up | Whole of life; over-50s plans |
| Joint | Either of the above | One payout for two people | Joint life |
For the general term-cover picture, start with how term life insurance works. The same summary sets out two joint bases: first-event cover pays when the first of the two people covered claims, and second-event cover, available only on level life cover, pays once both have died or meet the insurer’s definition of terminal illness. Joint life insurance sets out both.
Which one fits depends on what the money is for and for how long. If you want to hear how insurers would view your age and health, ask for a call back through the form here; going ahead afterwards is your choice.
Who gets the money, and how is that different from a will?
A will and a life policy do different jobs. Aviva’s summary describes a will as "a legal document that can be used to set out your wishes regarding the care of your children and how your estate should be distributed when you die." A policy pays a sum if a claim is valid, and where that sum goes depends on how the policy is set up.
A chart in the same summary shows who the insurer pays:
- for a policy held by and covering you, "Your estate";
- for a policy held jointly on a first-event basis, "The surviving policyholder";
- for a policy held under trust, "The trustees".
The summary warns that if you die without a valid will, "your estate, and potentially any money from this policy, doesn’t go to the person you would’ve wanted it to." The guide quoted at the top of this page makes the same point about single cover: "If you take out single life insurance, the money goes into your estate. So you need to decide who it goes to when you die."
Writing the policy in trust is what sends the money to trustees rather than the estate; what a life insurance trust is sets out the roles, and what a trustee does follows on. On tax, the summary says that in the UK the insurer’s payments carry no personal liability to income tax or capital gains tax, though inheritance tax may apply unless the money is left to a spouse or civil partner or the policy sits in a suitable trust. That is one insurer’s statement, not tax advice, and rules can change; is a life insurance payout taxable has the HMRC and GOV.UK detail.
Why do people take out life insurance?
Life insurance is meant to reassure you that dependants, such as your children or a partner, will be financially looked after if you die. Legal & General’s guide gives the practical uses: the cash sum can be used for any purpose, for example the mortgage, childcare costs, school fees or unpaid bills.
A check worth making first: what employers offer staff often includes death in service benefits, giving an amount of cover tied to your salary. Whether you need cover is your decision; do I need life insurance and cover when you have a child work through it, and how much life cover you need explains the method.
What decides the price, and how do you buy a policy?
We cannot give a monthly figure, because no price applies to everyone. MoneyHelper says monthly payments "will depend on things such as" "your age", "your health", "whether you smoke" and "the length of the policy". Aviva’s summary adds the "type and amount of cover". What life insurance costs explains what moves the price.
The premium can be fixed or can change. Legal & General’s terms describe guaranteed premiums, which stay the same unless you change your policy. On life and critical illness cover the Aviva policy has a second option: premiums reviewed every five years, which the insurer may then leave the same or move up or down. See whether premiums rise with age.
The same guide lists specialist brokers, comparison sites and "direct from insurers – not all sell through comparison sites" among the routes to a quote. Getting life insurance quotes covers what you will be asked, and best life insurance policies in the UK explains how to compare features rather than rank brands.
Frequently asked questions
What is the difference between life assurance and life insurance?
In practice, little. Legal & General applies “life assurance” both to whole of life cover and, at times, to life insurance in general, so check the policy summary to see which type of cover it actually describes; the difference between life insurance and life assurance sets out how it and Aviva use them.
Is life insurance an investment?
Not in the two insurers’ policies described here. Legal & General reminds buyers that life insurance is not a savings or investment product: it holds no cash value except through a valid claim, and Aviva’s summary says "This isn’t the kind of policy that you can ‘cash in’". See whether you can cash in a life policy.
Does life insurance pay out if you do not die?
Some cover pays on a diagnosis instead. Both insurers’ policies here pay on a terminal illness that meets their definition, and critical illness cover, if added, pays on a listed illness. A term policy that ends with no claim pays nothing; see policies that pay out if you do not die.
How many life insurance claims are paid?
The Association of British Insurers reported on 29 June 2026 that insurers paid out £7.84 billion in individual and group protection claims in 2025, and that "the proportion of protection claims paid in 2025 remained strong at 97.9%" for individual policies. The 97.9% covers life, critical illness and income protection together, not life cover alone. Life insurance claims statistics has more.
Will a payout affect benefits?
MoneyHelper says to think about "whether receiving a payout will affect any means-tested benefits your dependants might otherwise qualify for". Ask the benefit provider how a payout would be treated.
To move from general information to an actual quote, send your details through the form here and a broker authorised by the FCA will contact you.
Sources
- MoneyHelper, What is life insurance? (archived 3 August 2025), read 17 October 2026. web.archive.org (moneyhelper.org.uk)
- Aviva, Policy Summary of Life Insurance+ (AL50001 02/2026; adviser document library), read 17 October 2026. static.aviva.io
- Legal & General, Life Insurance – Policy Terms and Conditions (QGI12849 2026/10), read 17 October 2026. legalandgeneral.com
- Legal & General, Life Insurance FAQs, read 17 October 2026. legalandgeneral.com/faqs
- Legal & General, Types of life insurance (19 June 2026), read 17 October 2026. legalandgeneral.com/types
- Association of British Insurers, Protection insurers pay out £7.84 billion (29 June 2026), read 17 October 2026. abi.org.uk
- Samaritans, Contact a Samaritan, read 17 October 2026. samaritans.org