Life insurance companies make money through a balancing act of strategically priced premiums and clever investment.

They invest the money you pay in life insurance premiums, in an attempt to make more than the value they'll have to pay out in claims.

In addition to this, life insurance companies make money through individuals paying for life insurance who outlive their policies or pay more into their cover than the amount paid out.

At Reassured, we offer an award-winning, fee-free broker service, comparing quotes to help secure the best deal we can offer.

Get in touch for a free quote today.

Keep reading to fully understand exactly how life insurance companies make money…

Avoiding pay outs

It's often believed life insurance is a scam and that insurers make money by avoiding paying out.

In fact, contrary to this popular belief, 97% of all life insurance claims are successful[1].

If a pay out is denied it's usually due to one of the following reasons and is not an attempt to make a profit…

  • Non-disclosure - Failing to provide information or providing false information at the point of application
  • Missed payments - Leading to the expiration of cover
  • Outliving your policy term
  • Unsatisfied terms - Such as suicide clause or waiting periods or exclusions

Whilst a denied pay out is rare, it's always important to be open and honest when arranging your life insurance cover.

Therefore, if a claim is denied, it's not an attempt for life insurance companies to ‘make money’ and is certainly not their way of making a profit.

So how do life insurance providers make money?

Term-based premiums

Term-based life insurance lasts for a specified period of time.

If you pass away during the term of the policy, a pay out will be made to your loved ones, but outliving your cover will result in expiration of your policy and no pay out will be made.

When arranging cover, various information will be collected at application to assess your risk to the insurer and the likelihood of a claim being made.

This includes:

  • Your age
  • Your health
  • The amount of cover you require
  • The length of term
  • Smoking status

The less likely a pay out will be made, the more favourably your premium costs.

With regards to term-based cover, when a policyholder outlives their cover, no pay out will be made, therefore, meaning all money paid into the policy acts as profit to the insurer.

The good news is, at Reassured we can arrange term-based life insurance from just 20p-a-day and a cover period as long as 40 years.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.



The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.



The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.



According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.



When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources:, &


2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.



If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.


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Lifelong premiums

There are two types of life insurance policies which last for the rest of your life and therefore, a pay out will be made when you pass away, not if.

These include whole of life insurance which requires medical information and an over 50s plan which doesn’t.

With regards to lifelong cover, life insurance providers will make money by charging premiums with the likelihood of more money being paid into the policy than the overall pay out amount.

Due to the unknown risk associated with an over 50s plan, premiums tend to be significantly higher and available sum assured lower.

Whereas, whole of life cover offers a much higher sum assured for premiums based on your level of risk.

As a result, when arranging rest of life cover, it is essential to compare quotes to determine the best solution for you.

Clever investment of money

Alongside strategically priced premiums, life insurance providers will also invest a proportion of the money from monthly premiums into the stock market in an attempt to make further gains.

Any profit made from this investment is gained by the life insurance providers as profit.

Investments are carried out by highly trained individuals employed by the life insurance companies, either in-house or third-party.

Lapsed policies

Another way life insurance companies make money is through lapsed policies.

Many people take out life insurance but allow their policy to expire, not through reaching the term of their cover but through missing payments and never deciding to reinstate cover.

In this instance, life insurance companies receive months of premium payments without the need to ever make any death benefit payment.

A clever combination

As discussed, life insurance companies make money by a strategic combination of the above.

Of course, this is not a science, but years of analysis and clever mathematics allows life insurance providers to make informed decisions based on probabilities.

How do life insurance brokers make money?

Arranging your cover through a life insurance broker allows providers to reduce their marketing and overhead costs by gaining customers through a third-party.

In exchange, there are two models used by life insurance brokers.

Advised life insurance brokers will provide information and make suggestions as to which policy is best for the customer.

These brokers charge the customer for their services as a means of making a profit and usually charge a one-off fee or percentage of the overall policy amount.

Alternatively, a non-advised broker, such as Reassured, comes at no fee to the customer and simply collects a percentage of commission from the insurer they arrange the policy on behalf of.

Policies won't cost any more to the customer when arranged through a non-advised broker than they would if arranged directly.

Further benefits of arranging your cover through a broker include saving time and money by comparing quotes, receiving help with the application form and being provided with all of the information you need to come to the most informed decision.

So why not make use of our award-winning services today and get your free quotes.



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