Discover How A Life Insurance Savings Plan Works In 2025

Often confused as the same thing, a life insurance policy and life insurance savings plan are actually two distinct products.

Although they both hail from the same financial planning ballpark, there are significant differences.

Nevertheless, the primary motivation for entering into either one might be described as the same: comforting peace of mind for you and your cherished ones.

We shall briefly examine the features, benefits, and primary reasons for taking out a life insurance savings plan.

Before we dive into that, let’s clarify how life insurance savings plans differ from regular life insurance policies.

After all, it is important to understand these differences to make a clear decision that fits your needs and goals.

Fortunately, it isn’t a complicated subject as both products are similar, apart from one key component difference. Let’s take a look at what that is.

Protect Your Loved Ones & Grow Your Savings. Get a Life Insurance Plan That Does Both

Life Insurance vs Life Insurance Savings Plan

While there are some subtle differences in the finer aspects of each, the main difference between a traditional life insurance policy and a life insurance savings plan lies in their structure. 

A traditional life insurance policy is an agreement between an insurance company and a customer in which the insuring party pays a substantial sum to policy beneficiaries in the event of the policyholder’s passing.

Various structures are available, but most commonly, the policyholder is covered either for an agreed amount of time (known as a term policy) or a permanent amount of time (known as a life policy).

On the other hand, a life insurance savings plan—sometimes referred to as an endowment plan—provides that crucial ‘death benefit’ to loved ones just like a traditional life insurance policy but also includes a savings element.

This means that the policyholder can accumulate a nice pot of savings over time that can be used for a rainy day – or even taken out to cover future premiums.

Again, whichever way you look at it, the idea behind both products is the same: the peace of mind afforded in knowing that your loved ones are financially protected should the worst happen.

How Does a Savings Plan With Life Cover Work?

As you can see, a life insurance savings plan is more complex than a regular life insurance policy, which offers a savings element and traditional life insurance benefits.

As a result, you could argue that a life insurance savings plan is more comforting, at least in overall terms.

But how exactly does it work? The process begins by setting a time frame for your savings plan, usually spanning a minimum of 10 years, although on average, a 20-year time frame would be quite typical.

Of course, everyone has unique circumstances, so it is best to consult with a financial advisor to determine a timeframe that suits your profile.

Monthly Payments

Once you have established your time frame, you’ll need to start making regular policy payments,  usually taken out through Direct Debit. Currently, you are allowed to pay up to £25 tax-free each month. 

So, what is the typical cost of a life insurance savings plan? As you might expect, policies come in all shapes and sizes, depending on various factors that can affect the amount you pay each month.

However, in most cases, you are probably looking at somewhere in the region of £40-50 per month for life insurance savings.

But how exactly is your monthly payment divided, given that some goes towards the insurance policy and some is saved? Let’s examine what happens to your money once it is handed over.

Our newly updated life insurance vs savings account report offers greater insights into another closely related topic. It discusses the benefits and drawbacks of life cover in relation to the savings accounts offered by many high street banks and building societies.

Where Does My Money Go?

The money you invest is split between a contribution towards your life insurance and the funds you invest. In other words, a part of your premium acts in the same way that a regular life insurance policy would, while some of it is used for speculating. 

The premise is quite simple and similar to how banks generate profits. The insurance company will invest some of your monthly premium into various investment portfolios (such as shares, bonds, and property). The value of your payout is then determined by the success of those investments. 

But it doesn’t end there. Customers can have greater control over how their money is invested, choosing between a with-profit basis (where the company controls where to invest your money) or a unit-linked basis, where customers decide where it is invested. 

At the end of the policy term, you will receive a one-off sum payout, depending on how the investments performed and any bonuses that may have accrued.

Is My Money Safe?

All types of investments have a risk attached to them because that is just the nature of investing. The value can indeed change over time, which means there is a possibility that you may not get back as much as you put in – although the risk is quite low. 

However, the risk is negated to some degree, as most policies offer a guaranteed minimum payment at the end of the term.

Generally speaking, there isn’t much to worry about in this regard—your money will be taken care of by an insurance company. 

The only reason there would be a problem is in the rare event the company went out of business or if you had a unit-linked plan invested in stocks and shares and it was to perform poorly.

Given these turbulent times and an uncertain economy, pursuing a profit-linked policy might be more prudent.

What Are the Main Benefits?

As you can see, the difference between a traditional life insurance policy and a life insurance savings plan is quite simple.

They are very similar products designed to furnish you with peace of mind.

But what are the benefits of taking out a savings plan?

• Greater flexibility: A life insurance savings plan allows you to save at your own pace for various life goals, such as homeownership or holidays.

• Tax-Free Savings: The savings component in a life insurance savings plan grows tax-free.

• Lifetime Coverage: Unlike full-term life insurance policies, a savings plan can cover your entire life.

• No Medical Exam: No need to experience thorough medical exams (at least, not typically). 

• Withdrawals and Loans: A life insurance savings plan allows for withdrawals and loans against the cash value.

How Do I Sign Up for a Life Insurance Policy?

If you’re looking to take out a savings plan with life cover included, Insurance Hero, can help you find great deals on the market right now.

As an independent company, Insurance Hero is not owned by any insurance provider, so our information and quotations are unbiased.

We specialise in finding our customers the best life, income protection, and critical illness insurance quotes.

Reach out for an online quote, and we will scan the market for the best insurance products from leading providers that meet both your needs and budget.

If you prefer a quick chat with one of our experts, you can contact us directly. 

What Charges Are Involved?

While Insurance Hero provides all of our customers with a free service, there will be some charges to consider with the insurance company directly once we have found the perfect provider for your specific needs.

Let’s take a look at those possibilities

Other fees and charges may apply in addition to your monthly or yearly premiums, although these will, of course, be stated clearly before the policy is taken out.

These fees can sometimes include administration fees paid to the policy company, charges that might apply if you receive any bonuses during your policy, and exit charges if you decide to end your policy before the agreed contract period is over.

It’s also important to note that if you change how your money is invested (with profit or unit profit), you may face switching fees with most providers after the initial switch.

Perfect Solution

You might describe a life insurance savings plan as having the best of both worlds: the safety and peace of mind afforded by financial protection (should the worst happen) while saving some additional funds for your personal goals and dreams.

Investing in a savings plan with life cover gives you the flexibility to save tax-free at your own pace and potentially see your investments grow over time.

To get started with a life insurance savings plan, reach out to Insurance Hero today.

As an independent company with access to insurance providers across the UK, we can help you find the best policy to meet your specific needs and personal budget. 

With our assistance, you can protect your loved ones’ future while achieving your savings goals.