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What is Life Insurance?

Life Insurance is designed to provide a tax free cash sum to your loved ones should you pass away while the policy is in force.

There are several different types of Life Insurance which can be used for different reasons and the type of cover you choose will have an impact on how much your Life Insurance premiums cost. Typically Life Insurance is used to:

  • Pay off your mortgage and other debts
  • Cover your funeral costs
  • Meet daily living expenses
  • Plan for the future, e.g. put children through university or keep up with school fees.
  • Pay Inheritance Tax liability

Below is an overview of the most common types of Life Insurance and what they are used for.

Types of Term Life Insurance

Decreasing Term Insurance

The benefit on a Decreasing Term Insurance policy falls over time, reaching zero by the end of the policy. This is typically used alongside a straightforward repayment mortgage, where the amount you owe and therefore the cover yo need is falling as time goes on.

Given the risk to the insurer falls as the policy ages, it’s typically one of the cheaper Life Insurance options on the market. This is because the risk to the insurer falls over time.

Level Term Insurance

Level Term Insurance pays out a fixed cash lump sum to your loved ones. This figure doesn’t change over time and stays the same for the life of the policy.

This means the benefit paid on a 25 year term insurance policy would be exactly the same in the first year as in the 25th year.

As the benefit remains level, level life cover is more expensive than Decreasing Term Insurance because the risk to the insurer remains level over time. This is compared to decreasing cover, where the risk the insurer is taken essentially falls to zero along with the sum assured by the end of the policy.

Family Income Benefit

Family Income Benefit works slightly differently. Instead of receiving one lump sum, as with term insurance, your loved ones receive a regular income for a set number of years.

Family Income Benefit is often used to help maintain your partner and children’s standard of living until they are of an age where they are self sufficient, such as when they finish full time education.

Whole of Life Insurance

Rather than covering the policyholder for a set period of time, so long as you maintain paying the premiums a Whole of Life Insurance policy will remain in force until you pass away. Given the guaranteed nature of the policy it is the most expensive form of Life Insurance.

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How Much Life Insurance Do I Need?

How do you calculate how much Life Insurance you need? That’s a difficult question – not only will it vary by person, but choosing an amount of cover will impact the cost of Life Insurance premiums.

Essentially, it all boils down to what your liabilities are and how much you want to leave your family.

How Much Mortgage Life Insurance Do I Need?

Mortgage Life Insurance is designed to repay your mortgage should you pass away before you can repay the debt.

This protects your family and allows them to stay in the family home should the worst happen without having to worry about mortgage repayments.

To calculate how much Mortgage Life Insurance you need, work out how much is left on your mortgage. Your benefit should always match the outstanding mortgage balance so you can be sure the debt is repaid.

What type of mortgage do you have?

  • Repayment mortgage
    Given the amount you owe falls over time, the amount of Life Insurance you need also reduces alongside the outstanding debt. Decreasing Term Life Insurance is therefore suited to a repayment mortgage, as the amount of cover reaches zero by the end of the mortgage term.
  • Interest-only mortgage
    As you repay only the interest on the debt and not the outstanding mortgage balance, the amount of life cover you need will have to stay fixed over time, just like the mortgage debt. A Level Term Insurance policy is typically best suited for interest-only mortgages.

Life Insurance for Other Debts

As well as your mortgage, consider any other debts you have that you might want to repay after your death. This might include bank loans credit cards and any other finance.

If you’re making regular repayments on these debts, such as bank loans, then you can have a decreasing policy just as with a mortgage.

If you’re not making regular repayments to reduce the debt, you may want to consider a Level Life Insurance policy to leave enough cash to repay these non-mortgage debts.

Life Insurance and Funeral Costs

According to SunLife’s annual Cost of Dying Report, in 2017 the cost for a basic funeral stands at £4,0781.

This is the first time the cost of a funeral has topped £4,000 and doesn’t include ‘discretionary’ funeral spending, such as catering, limo hire, flowers, a headstone/memorial etc. Discretionary expenses took the total cost of a funeral in 2017 to more than £6,000.

Many people don’t have sufficient cash to spare in their bank or in the estate, especially if the bulk of the estate is tied up in a home the family is still living in, to pay for funeral costs.

You can therefore opt to include funeral costs in your Life Insurance calculation to ensure your family don’t have to worry about such expenses.

Whole of Life Cover

Whole of Life Insurance guarantees a payout on your death, whenever that may be, rather than over a set term. For this reason, people often use Whole of Life Cover for funeral expenses. Such policies include Over-50s Life Insurance policies.

Do You Want to Leave a Lump Sum or Income?

On top of everything else, such as paying off your mortgage and other debts and covering funeral expenses, you may want to leave a lump sum or income behind so your family can maintain their standard of living after you pass away.

If you want to leave a lump sum, this can be achieved with a Level Life Insurance policy.

Level Life Insurance maintains a steady sum assured throughout the life of the policy, usually over and above whatever is left on your mortgage. That ensures your family will always have a lump sum left over even after debts are cleared and the funeral is paid for.

Alternatively, you could opt for Family Income Benefit. This will provide your loved ones with an income for a set number of years rather than a lump sum.

This can be used to keep up with mortgage repayments, cover school fees and generally maintain the lifestyle your family had before you passed away.

Life Expectancy CalculatorA bit morbid we know, but this tool works out the risk of you passing away based on ONS Life Expectancy Data
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How Much Does Life Insurance Cost?

As mentioned, when you run a Life Insurance calculator you’ll find the single biggest factor in determining the cost of life cover is the size of your benefit.

Below is a guide to calculating how much Life Insurance you need, but there are also other factors that will have an impact on your Life Insurance premiums.

These include:

  • Your age
  • Your state of health
  • Your smoker status
  • Whether your cover is level or decreasing.

Often people feel that Life Insurance must be expensive, especially if they’re applying for hundreds of thousands of pounds to cover a mortgage. However, particularly if you’re young and healthy, the price of Term Life Insurance is typically pretty sensible.

Life Insurance Premium Calculator

In the tables below, we’ve run a Life Insurance calculator to work out monthly premiums for a healthy, non-smoking office worker looking for £250,000 of cover.

We’ve included premiums for two different types of life cover: level and decreasing. These Life Insurance calculations are based on them wanting a single policy with no additional Critical Illness Cover over a 25 year term.

Age

Decreasing Cover

Level Cover

25

£5.76

£7.70

35

£8.90

£12.59

45

£18.08

£27.52

Premiums represent the best rates available across the UK market and are correct as of March 3rd 2019

Compare Best UK Life Insurance Companies

aegon

Aegon

Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
aig

AIG

US insurance giant American International Group, Inc. (AIG) was first founded in 1919 and since then has grown to operate on a global scale. It provides a range of protection products for both individuals and businesses.

  • Minimum entry age: 18
  • Maximum entry age: 88
  • Minimum term: 2 years
  • Maximum term: 70 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
aviva

Aviva

Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
guardian

Guardian

Guardian is a relaunched protection brand with a number of unique features to its policies.

  • Minimum entry age: 18
  • Maximum entry age: 65
  • Minimum term: 1 year (Level and Increasing Cover) / 5 years (Decreasing cover)
  • Maximum term: 72 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: £15 million
legal & general

Legal & General

L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies

  • Minimum entry age: 18
  • Maximum entry age: 77
  • Minimum term: 1 year (Level Cover) / 5 years (Decreasing cover)
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
liverpool victoria

Liverpool Victoria

LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members.

  • Minimum entry age: 17
  • Maximum entry age: 79 (Level or Decreasing cover) / 59 (inflation-linked cover)
  • Minimum term: 5 years
  • Maximum term: 45 years
  • Maximum cover: Unlimited
Royal London

Royal London

Royal London previously operated Scottish Provident and Bright Grey as separated brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both were merged into the main Royal London brand.

  • Minimum entry age: 18
  • Maximum entry age: 70
  • Minimum term: 1 year
  • Maximum term: 72 years
  • Maximum cover: Unlimited
scottish widows

Scottish Widows

Founded in 1812, Scottish Widows is today part of Lloyds Banking Group.

  • Minimum entry age: 18
  • Maximum entry age: 79 (must end before individual’s 90th birthday)
  • Minimum term: 1 year (Level and Increasing) / 3 years (Decreasing)
  • Maximum term: 72 years
  • Maximum cover: £25,000,000 (Level and Decreasing) / £15,000,000 (Increasing)
vitality

Vitality

Vitality entered the UK market in 2007 with a joint venture with PruHealth and PruProtect, part of the Prudential Group. It has since bought out Prudential and is now branded solely as Vitality.

  • Minimum entry age: 16
  • Maximum entry age: 74 (cover must end before age 90)
  • Minimum term: 5 years
  • Maximum term: No maximum (cover must end before age 90)
  • Maximum cover: £20,000,000

Get Expert Advice Calculating the Cost Your Life Insurance

You can use the Life Insurance cost calculator on this page to work out how much your premiums will be given your needs and circumstances.

However, while the tools on this page help, identifying the best policies is only half the battle particularly if you have existing health conditions or are looking to include Critical Illness Cover.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

  • There is no fee for our service
  • We are independent and impartial
    Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
  • We’ve got bargaining power on our side
    This allows us to negotiate better premiums for you than you going direct yourself.
  • You’ll speak to a dedicated expert from start to finish
    You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing a 5-star service, as can be seen from our 2454 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
  • Claims support when you need it the most
    You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
rob harvey, head of protection advice at drewberry

We are here to help individuals make sure they have the right financial protection in place and the most competitive premium.

If you need some help please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Robert Harvey
Head of Protection Advice at Drewberry

Sam was very helpful and kept me informed at all times. Brilliant service.

Paul Williams
05/06/2019
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