Life insurance gives your family financial security if you die. But not all life insurance is the same. The two main types — term life insurance and whole of life insurance — work very differently, suit different needs, and have very different price tags.
What Is Term Life Insurance?
Term life insurance is the most straightforward and affordable type. You choose a fixed term (e.g. 20 or 25 years) and a sum assured (e.g. £250,000). If you die within that term, your beneficiaries receive the payout. If you survive the term, the policy ends with no payout — it's pure protection, not an investment.
Types of Term Insurance
- Level term: The payout stays the same throughout the policy. Good for fixed needs like an interest-only mortgage or income replacement.
- Decreasing term: The payout reduces over time (usually in line with a repayment mortgage balance). Cheaper than level term.
- Increasing term: The payout rises over time linked to inflation. More expensive but protects the real value of your cover.
- Family income benefit: Pays a regular income instead of a lump sum. Good for replacing salary income.
A healthy 30-year-old can get £250,000 of level term cover for 25 years for as little as £8–£12 per month. Premiums are locked in at the start and don't change.
What Is Whole of Life Insurance?
Whole of life insurance pays out whenever you die — there's no end date. Because a payout is guaranteed, premiums are significantly higher than term insurance. It's often used for inheritance tax (IHT) planning.
Term vs Whole of Life: Head to Head
| Feature | Term Life | Whole of Life |
|---|---|---|
| Payout guaranteed? | Only if you die in term | Yes, guaranteed |
| Monthly cost | Low (from ~£8/mo) | High (often 5–10x more) |
| Cash value? | No | Often yes |
| Best for | Mortgage, family protection | IHT planning, estate planning |
| Term | Fixed (e.g. 20–40 years) | Lifetime |
How Much Life Cover Do You Need?
A common rule of thumb is 10x your annual income, but a more accurate approach considers: outstanding mortgage, years dependants need support, income to replace, existing death-in-service benefit, and childcare or education costs.
What About Critical Illness Cover?
Critical illness cover (CIC) pays a tax-free lump sum if you're diagnosed with a specified serious illness. It addresses a different risk to life insurance — the financial impact of surviving a serious illness. Many people combine both.
Write Your Policy in Trust
Writing your life insurance policy in trust means the payout goes directly to your beneficiaries, bypassing your estate. Benefits: not subject to IHT, faster payment (no waiting for probate), and you control who receives it. Usually free to do through your insurer.
Always disclose your full medical history honestly at application. Failing to do so can invalidate the policy when your family needs it most.
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Get Life Insurance Quotes →Frequently Asked Questions
At what age should I get life insurance?
The younger and healthier you are, the cheaper your premiums. The most common triggers are buying a home, starting a family, or taking on significant debt.
Can I have more than one life insurance policy?
Yes — there's no legal limit. This can be useful for specific purposes, e.g. one policy tied to your mortgage and a separate income protection policy.
What happens if I stop paying my premiums?
For term insurance, the policy lapses after a short grace period. You lose your cover and any premiums paid — there's no cash value returned.