Best Alternatives To Life Insurance Cover Options For 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 31st December 2023

alternatives to life insurance

Whether they are declined for a whole or term life insurance policy or simply do not wish to bother with life insurance, some UK residents look for an alternative.

Welcome to our newly updated alternatives to life insurance guide.

Death can happen anytime, and most people deem it important to provide financial support to surviving loved ones.

There are alternatives to life insurance, and the most common ones involve saving or investing money to provide a nest egg for beneficiaries.

Saving or Investing What’s Best?

Providing surviving family members with enough money to live on following your death requires saving or making investments that earn tens to hundreds of thousands of pounds.

This may be achievable for people who earn significant income or are excellent investors. For others, saving this amount of money can restrict their lifestyle in an unhealthy way.

The advantage over buying a life insurance policy is that saved money is available rather than used to pay insurance premiums.

One of the major problems with saving money to benefit others in the future is that we do not know when we will die. We may not have enough time to save enough money to benefit our loved ones over the long term.

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alternatives to term life insurance

To maintain their current lifestyles, our beneficiaries may require enough money to cover a lifetime of mortgage payments or the repayment of the mortgage balance. They may also need enough income to cover expenses until they can secure employment that provides sufficient income or until children reach adulthood.

Death In Service

Death in service is a type of life insurance policy that some employers provide to their employees. If you pass away while employed, your chosen beneficiaries could get a monetary lump sum.

Death in Service payout is typically between two and four times the annual earnings, and you’ll need to determine if that’s enough security for your family members if you pass away suddenly.

In most cases, the money you receive from the death in service policy is tax-free to the beneficiaries of your policy.

Who Can Apply for Death in Service Cover?

Death in service cover is usually only available to employees of a company. In some cases, self-employed people can also get cover if they belong to a professional body or trade association that offers this type of benefit.

If you’re unsure whether you’re eligible for death in service cover, it’s best to check with your employer or the organization you belong to.

How Much Does Death in Service Cover Cost?

One of the great things about death in service policies is that your employer pays for them, so there is no cost to you as the employee. Your employer will decide how much cover they want to provide and what the payouts will be if you die while employed.

It’s important to remember that each life insurance policy has its terms and conditions, so make sure you understand what each policy covers before making a decision.

Mortgage Life Insurance

Homeowners may want to consider mortgage life insurance plans as alternatives to life insurance. This policy helps prevent the mortgage loan from defaulting in the event of illness, accident, unemployment, or death of the policyholder.

It is a combination of mortgage payment protection insurance, critical illness cover, and mortgage life insurance, so technically, there is a life insurance component to it.

Applicants may select a level term policy designed for an interest-only mortgage, a decreasing term policy suitable for a principal repayment mortgage loan, or a mortgage life insurance policy featuring indexation that tracks the Retail Price Index and increases the assured sum annually in line with inflation. A life insurance provider can advise whether this type of policy is suitable and affordable.

Individuals Without Dependents

People who do not have dependents may opt for stand-alone critical illness cover or income protection insurance that provides a financial benefit if the policyholder cannot work due to a critical illness or redundancy.

Someone with no beneficiaries is not usually concerned about leaving money to surviving family members because these individuals are not immediate relatives.

What Is A Private Pension In The UK?

It would be remiss when discussing alternatives to life insurance not to discuss pensions. A private pension is a retirement savings plan you set up and make contributions to, often through your employer. The money in your pension pot can give you an income when you retire.

There are two types of private pensions in the UK:

  • Defined contribution pensions
  • Defined benefit pensions

Defined Contribution Pensions

With a defined contribution pension, the money you get when you retire will depend on how much you’ve paid in and how well your investments have done.

You’ll usually start by choosing how much money you want to put into your monthly pension. Your employer may also make regular payments and contribute any bonuses you receive. The money is then invested, and over time it should grow. Once you retire, you can use this money to provide an income for yourself.

What are the benefits of a defined contribution pension?

You control how much money goes into your pot with a defined contribution pension. You can also usually access your pot from age 55 (57 from 2028). And because the value of your pension will depend on how well your investments have performed, it could give you a higher income in retirement than other types of pensions.

Defined Benefit Pensions

A defined benefit pension is sometimes called a ‘final salary’ or ‘career average pension’. With this type of pension, your payments are based on factors like how long you’ve been in the scheme and how much your salary is when you retire.

Your payments are calculated using a formula specific to each scheme, so they can vary quite a bit. But typically, for every year you’re in the scheme, 1/60th or 1/80th of your final salary (depending on when you joined) will be added to your annual income in retirement.

What are the benefits of a defined benefit pension?

A key advantage of a defined benefit pension is that it gives you certainty about what income you’ll receive in retirement – unlike a defined contribution pension, which can go up or down depending on investment performance.

And with some schemes, if something happens and you’re unable to continue working before retirement (perhaps due to ill health), there may be provisions to pay out some or all of your benefits early.

Do I need life insurance if I have a pension?

You might not need life insurance if you have a private or workplace pension, as these can often provide income for spouses or civil partners after death.

However, it’s always worth checking whether this would be enough to cover all expenses – particularly if there’s a mortgage or other debts to think about – as it may not be enough on its own.

Life insurance can give peace of mind that loved ones will be taken care of financially if something happens to one wage earner.

Alternatives To Life Insurance Conclusion

We hope you found this alternative options to life insurance page helpful. Though life insurance is popular, it is not for everyone. People who prefer to bypass it should consider saving and investing as alternative ways to provide for surviving loved ones.

Homeowners may wish to consider a mortgage insurance package. Individuals without dependents may prefer to focus on taking care of themselves financially should an accident, illness, or job loss render them unable to work.