Do life insurance policies pay out
TL;DR
Life insurance pays out if the insured person dies during the policy term (for term policies). The payout is usually a tax‑free lump sum to the beneficiaries, though inheritance tax can apply to your estate depending on your circumstances. Arranging the policy in trust can help keep the payout outside the estate.
Life insurance pays out if the insured person dies during the policy term (for term policies). The payout is usually a tax‑free lump sum to the beneficiaries, though inheritance tax can apply to your estate depending on your circumstances. Arranging the policy in trust can help keep the payout outside the estate.
Key Points
- Life insurance pays a tax-free lump sum to your beneficiaries
- Term life insurance covers you for a set period (e.g. 25 years)
- Whole of life insurance covers you for your entire life
- Decreasing term is commonly used for mortgage protection
Who Is This For?
Life insurance is particularly important if you have a mortgage, dependants, or anyone who relies on your income. If your death would cause financial hardship for others, life insurance provides essential protection.
Next Steps
Our FCA-regulated advisers can help you find the right life insurance policy for your circumstances. We compare the whole market to find cover that fits your budget and protects your family.
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Content reviewed: January 2026