How Much Does a £500,000 Life Insurance Policy Cost?

It’s extremely difficult to put an average cost on any amount of a cash-sum life insurance policy.

life insurance couple photoEspecially higher value investment policies, which a £500,000 life insurance policy would be considered as an investment.

The reason being, it’s unlikely that you’d actually pay in that amount with your monthly premiums over the term of the policy.

Therefore, to ensure your family get the funds you take the insurance policy out for, the company providing the assured lump sum under contract, would need to invest part of your premiums to ensure they raise enough capital to pay your assured lump-sum out when it’s required.

To account for that element, you need to factor in the type of insurance policy. The most used types of policies are term life insurance and whole of life insurance.

Term insurance can be short term or stretched over a longer term such as 25-years or longer. A whole of life just means that your policy will remain active until your demise, at which stage the lump sum you’re assured for in the policy will pay out to your beneficiaries.

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How Does Life Insurance Work?

A life insurance policy is a contract between the person whose life is insured and an insurance provider. A policy can be taken out by anyone, and on anyone’s life where there’s evidence of a financial relationship.

That could be taking out a life insurance policy on your own life, or a joint policy for you and your partner, so that in the event of one person’s death, the life insurance policy will pay out a cash sum to the living survivor. Or the proceeds of the policy paid to relatives and dependents.

How it’s paid depends on your own instructions and should be discussed with your legal advisor as it is advisable to write the policy into Trust.

By writing into Trust the proceeds are paid directly to the beneficiaries named. If that’s not done, the proceeds are accounted for as part of the deceased’s legal estate, which means the sum paid out will be subject to Inheritance Tax.

For that reason, especially when the sum insured is as high as £500,000 life cover, it can work out to quite a substantial sum. When arranging a high amount of life cover, it is advisable to seek legal advice to ensure you have your policy set up in the most tax efficient way possible to benefit the beneficiaries named on your policy.

See: Life Insurance FAQs for further information on how life insurance works

Life Insurance Rates by Age Chart

The insurance rates by age chart below gives an illustrative example of what the premiums could be on a £500,000 life insurance policy.

life assurance table image

The above chart is a sample obtained from GuidetoLifeInsurance.co.uk. The figures in the chart are based on a straightforward life insurance policy for a male and female for a £500,000 sum assured. It can only give you a rough guide to the estimated costs, but it’s not going to give you exact figures. The reason being, this only accounts for male and female as either a smoker or non-smoker. It does not take into account salary information, health information, number of dependents, outstanding mortgage balance, plus many other factors that make up your total cost of life insurance.

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For that reason, the life insurance rates by age chart detailed above are only indicative of a minimum monthly cost.

Asides from that, it’s not to say that you actually need £500,000 worth of cover to ensure your family’s financial certainty. Many life insurance firms will ask you questions during the quotation stage to ensure you get sufficient level of cover and avoid being under insured or over insured.

How Much Life Insurance Do I Need?

When considering investing in a life insurance policy, arranging a £500,000 Life Insurance Policy is a sure-fire way to ensure your loved ones are left with a reasonable sum to take care of any financial worries they may have. It’s not going to ease their loss but it will allow them to live with financial certainty for a length of time, alleviating the worry of taking time off work, caring for relatives if they couldn’t afford to hire help and perhaps even ensuring that children in private education can still have their tuition fees paid until their education ends.

However, it’s not always the case that you need a £500,000 Life Insurance Policy. The amount of cover you need could be far lower than that.

When investing in life insurance, there are two ways you can look at it. The first is to choose the amount of cash you want your policy to pay out. In the case of arranging a £500,000 policy, that’s what you’d be doing. The premiums will be higher and when you take into account what you actually need to have covered; it may not be anywhere near what you require. In some cases, arranging a £500,000 Life Insurance Policy can mean that you’d be over insured. That would see you paying higher premiums than you need to be, because you’d be insured for a lump sum that’s higher than what your family would need for financial stability.

The higher amount your life insurance policy is worth, the higher a premium you’ll pay.

The amount of life insurance cover you actually need is mostly based on your cost of living. The expenses you have every month, including family holidays, mortgage payments, child care etc.

Whatever it costs your family to maintain their lifestyle, that’s what to account for to determine the amount of cover you need.

This approach to arranging your life insurance policy takes into account the finance your family would need should you die, which would result in a loss of household income.

For that reason, many online life insurance calculators will have a range of questions and different figures you’d need to account for to determine how much life insurance you would need as a minimum to alleviate any financial pressure on your family in the event of your demise.

Using a Life Insurance Calculator (UK)

A life insurance cost calculator is the best way for you to get a real look at how much a life insurance policy would cost you for the amount your family would need. The vast majority won’t give you figures based on how much cover you want insured for, but instead they’ll take you through a series of questions designed to tailor a quote to your specific circumstances.

A list of questions you could be asked during the process of using a life insurance calculator include:

  • Your gender
  • Your age
  • Your marital status
  • Your monthly or annual salary
  • If you have any dependents under the age of 18
    • If you have children, you’ll be asked some questions about them such as their age, gender and if you’ll pay their university fees and/or their living expenses during their time at university.
  • If you have any other assets that would form part of your estate. This is asked because if you have a couple of homes worth a total of £200,000 then that’s a sum you wouldn’t need to include in your cover for as your family would be able to sell those assets to raise cash.
  • If you’re still paying towards your mortgage, and if so how much is remaining
    • Or if you’re a tenant, the amount of rent you’d need to include in your life insurance policy
  • Any savings, investments, existing life insurance policies and any other assets you have
  • Other outstanding debts and loans
  • Any additional costs such as private tuition fees, childcare, or the cost of caring for relatives

The reason these questions are asked is to determine the level of cover you need to cover your families living costs. Based on the answers you give, the life insurance calculator can then determine how much life insurance cover you actually require, and that may be lower or higher than what you thought you needed.

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What’s the Average Life Insurance Cost UK?

“The average premium of £10.31 a month, based on a 25-year term for a 38-year-old (average age of SunLife term life insurance customer) and accepted on standard rates, rising to £20.14 per month for smokers.”

The above is a quote from an article published on FTAdvisor.com. The figures are based on data obtained during a national survey conducted by Critical Research in 2015. Of those polled, the respondents assumed that the average cost of cover for a £100,000 life insurance policy would cost in the region of £51 per month. It’s actually far lower and based on the assumed monthly premium of £51 per month, that’s likely to be the region for a £500,000 life insurance policy, which you’ll see in the chart above, isn’t even as much.

The average cost of life insurance per month for one person is roughly £10 for a non-smoker, which doubles to £20 per month for a non-smoker for a £100,000 policy, which realistically is enough for the average family household to clear debts, and any outstanding amounts on an existing mortgage. This does not take into account any other health factors, family history, or salary. Therefore, it’s a guideline only.

Related Reading:

Why Do Quotes from Insurance Comparison Sites and Advisors Differ?

Does Your Occupation Affect Life Insurance?

What Influences UK Life Insurance Premiums?