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        Updated: April 17, 2024

        Types of Life Insurance

        Life insurance policies come in many shapes and sizes. Read our guide to find a complete rundown of the types of plan on offer

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        Protecting your family’s future wellbeing in the event of your death is why life insurance is one of the cornerstones of financial planning, therefore, it’s important to understand which types of life cover are most appropriate for our own personal circumstances.

        So, what are all the different types of life insurance policies available in the UK and how do you know which one is right for you?

        This guide provides all the information you need to be able to make an informed decision.

        What is the best type of life insurance for me?

        Knowing which life insurance policy is best for you very much depends upon your own personal circumstances. There is no ‘one size fits all’ and if you try to take one out you’ll probably end up paying a lot more than you need to, hence why there are so many different types of life insurance able to provide coverage for a range of scenarios.

        The main factors which determine what type of life insurance is best to get would be:

        • Your age
        • Your family status
        • Your financial position

        Your life cover needs will undoubtedly change throughout your life. As you’ll see when you read the information below, it’s highly likely that different types of life insurance could be required at the same time and sometimes it is not simply a case of ‘either-or’.

        Taking all of this into account, the smart way to find out the best type of life insurance for you is by speaking with a life insurance expert. This is where we can help.

        The advisors we work with understand all the various types of life insurance and can help you determine which policy provides the best coverage for your specific requirements. If you get in touch we can arrange for an expert to speak with you.

        Speak to a expert today

        Fixed-term life insurance

        Fixed-term life insurance is regarded as the most basic form of life insurance, providing coverage for a set period of time.

        What are the different types of fixed-term life insurance policies?

        The two most common types of fixed-term life insurance are:

        Let’s take a closer look at how each of these types of life cover work.

        What is level term life insurance?

        Level term life insurance provides a fixed (or level) amount of life cover throughout the set term of a policy.

        Level term is most commonly used for family protection needs as a means of replacing the income of one of the main financial providers in the event of their death.

        It can also provide life cover for interest-only mortgages where the capital owed to the lender remains the same throughout the term.

        Level term is pure life cover with no investment element attached. If death occurs during the term your beneficiaries will receive a one-off lump sum payment and the life insurance policy will then stop at that point.

        Once you reach the full term, if no claim has been made, the life insurance policy will simply cease.

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        If you’re the main breadwinner in a family with young children and you earn £30,000 per year, a 20-year level term life insurance with a sum assured of £150,000 would replace the equivalent of five years’ worth of your salary should you die during this term.

        For an interest-only mortgage, if you borrow £250,000 over a 25-year term, then your level term life insurance policy should to mirror both the amount of debt and the number of years to ensure the correct level of cover is in place throughout.

        What does level term life insurance with critical illness cover mean?

        A level term life insurance policy with critical illness cover will provide a lump sum payment upon death or diagnosis of a critical illness during the term.

        What is defined as a critical illness varies between providers although most firms will all cover the ones that would spring to mind such as cancer, stroke, heart attack etc. All insurers will be able to provide a policy document listing exactly what is covered.

        What is decreasing term life insurance?

        Decreasing life insurance provides an amount of life cover that gradually decreases throughout the term of a policy.

        Decreasing life insurance is generally used to provide sufficient funds to fully repay a specific debt in the event of your death and is most often associated with repayment mortgages

        Rather than have a fixed sum assured, a life insurance policy that provides decreasing cover aligned to the amount of borrowing is (with the exception of interest-only lending) deemed more appropriate and resourceful.

        These policies tend to be cheaper than level term ones.

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        If someone borrows £200,000 over 25 years for a repayment mortgage, they would include a decreasing life insurance policy with the same sum assured and term.

        As the debt on a repayment mortgage gradually reduces throughout the loan term so does the life cover. So, for example, if the mortgagee dies after 15 years, whatever debt is still owing on the mortgage will be repaid by their decreasing life insurance policy.

        Once a claim is made and the sum assured is paid, as with level term, the policy will stop. Also (similar to level term), decreasing life insurance policies are available with critical illness cover.

        Level term vs decreasing term

        As outlined in the sections above, the key difference between level term and decreasing term relates primarily to the types of life insurance coverage each policy provides in the event of your death.

        With level term, the sum assured remains fixed throughout the life of the policy whereas with decreasing term the sum assured reduces in line with a specific amount of debt linked to the cover. As a result premiums for decreasing term policies are typically cheaper than for level term cover.

        The question as to whether you should consider level term or decreasing life insurance is really based upon the reason why the cover is required.

        It’s quite possible that a need exists for both types of cover, therefore, rather than making a choice between decreasing or level term life insurance you may decide coverage is required that encompasses each type of policy.

        An obvious example would be a young family with a repayment mortgage. In this instance a level term insurance plan could be used for income replacement purposes whilst decreasing term insurance would be the most appropriate form of mortgage life cover.

        If you’re interested in finding out more about either level term or decreasing life insurance, make an enquiry and we will ask one of the advisors we work with to get in touch.

        What other types of fixed-term life insurance are there?

        In addition to level and decreasing term insurance, there’s also:

        What is increasing term life insurance?

        Increasing term life insurance is a form of level term cover which increases each year. As your sum assured increases as does the monthly premiums. You can set the rate of increase to a certain percentage or even a certain index such as Retail Price Index (RPI), see below.

        What is index-linked life insurance?

        Index-linked life insurance is another type of increasing term life insurance given to life cover which rises in line with the Retail Prices Index (RPI), which is the official measurement of the cost of living in the UK.

        As the cost of living increases over the years this means that money buys you less. £100,000 today will buy you a lot less than what £100,000 would’ve bought you 30 years ago. The rate of increase of the cost of living in the UK is measured by the aforementioned RPI so in order to keep up with the increasing cost, many providers offer policies where the sum assured – and consequently, the monthly premium – rise in line with the RPI.

        What is convertible life insurance?

        Convertible life insurance is a term insurance policy with an important additional benefit. If your life insurance plan is convertible this means the policy can be switched to a longer timescale than originally agreed, possibly without having to undertake any additional medical checks.

        For example, a term policy converting to a whole of life policy. There’s normally an extra premium on top of what you’re paying for the cover to have this benefit.

        What is unit-linked life insurance?

        A unit-linked life insurance plan has an investment element attached and is typically available as a ‘whole of life’ insurance policy.

        A proportion of your monthly premiums are used to purchase units within an investment fund (or range of funds) of your choice and a proportion is used to pay for life cover.

        As a whole of life plan, your life cover remains in place while you continue to make your regular premiums. If you choose to cash-in your policy during your lifetime, the surrender value you receive will be based on the performance of the underlying assets.

        Unit linked life insurance can also be available as a single premium plan.

        If you’d like to know more about unit-linked life insurance, get in touch and we’ll match you with an expert to discuss it further.

        What is permanent life insurance?

        Permanent life insurance is more commonly known as whole of life insurance or lifelong insurance in the UK and is designed to provide coverage whenever death occurs.

        Permanent life insurance, as with unit-linked policies, provides an opportunity to include an investment element within the plan. The value of your investment is based on the performance of the funds you have chosen.

        What is variable life insurance?

        Variable life insurance is another form of whole of life insurance where your premiums are used to purchase units within a range of investment funds combined with life insurance.

        Speak to a expert today

        What is employee supplemental term life insurance?

        This would be more commonly referred to as a group employee insurance plan and is usually offered to a particular group of employees whose work and expertise contribute significantly towards the performance of a business,in addition to any standard life insurance offered by an employer.

        If you’re an employer and would like to know more about the benefits of a group life insurance scheme, get in touch and we can arrange for an expert to speak directly with you.

        What is acceleration life insurance?

        This would be more commonly known as ‘accelerated death benefit’ in the UK and would be described as a life policy that would include the benefit of an early payout of a proportion or all of the sum assured upon diagnosis of a terminal illness.

        What is a lifetime life insurance plan?

        A lifetime life insurance plan provides pure life cover, with no investment element attached, whenever death occurs. This type of insurance provides a number of hybrid features of both fixed-term plans and whole of life cover.

        Speak to an expert

        Securing comprehensive life insurance doesn’t have to be a headache – the advisors we work with can provide you with the right advice that’s tailored to your circumstances.

        All advice is free and you’re under no obligation to make a purchase. Call us on 0808 189 0463 or make an enquiry to get started.


        A sum assured is basically the amount of life cover your policy provides. So, if the sum assured on a policy is £100,000 then, in the event of a claim, this is the lump sum payment which a beneficiary will receive.

        Once your children are no longer financially dependent upon you, your mortgage has been paid off and you’re in receipt of your guaranteed pension, there is likely not going to be a great need to replace lost income.

        However, many people who reach retirement may like to ensure adequate cover is in place to cover any funeral expenses or any potential inheritance tax liability should their estate fall into this category.

        If you’ve recently reached retirement make an enquiry and we can arrange for an advisor we work with to discuss what potential life cover needs may exist at this stage in your life.

        Yes, this is possible. However, it’s worth remembering that each provider will use their own internal statistical data and actuarial information to calculate their premiums. This is the same for different types of cover available from all insurance companies.

        Premiums will, therefore, vary depending on which calculator you use. The advisors we work with can provide accurate calculations for the type of life cover best suited for your requirements.

        If you get in touch, the expert we match you with can provide you with a tailored estimate of your premiums.

        The assignment of a life insurance policy into trust can be a very sensible way to ensure the proceeds from any claim remain outside of your estate for inheritance tax (IHT) purposes. It also allows you to decide who you want to be the recipient of the pay out rather it becoming part of your estate and following the laws of intestacy if you don’t have a will.

        It should also allow for a quicker payment to your beneficiaries as they would not have to wait for probate to be granted before receiving the funds.

        If you’d like further advice on placing a life policy into trust, make an enquiry and we will arrange for an advisor we work with to get in touch

        Direct term life insurance is a facility offered by certain providers which allows you to set up your own policy by dealing directly with them rather than using an advisor to help you.

        However, advisors are able to offer a more bespoke service with their whole-of-market access, meaning that they can find you the best possible life insurance deal based on your circumstances and preferences.

        To find out how good working with an advisor could be, make an enquiry.

        This phrase typically refers to a benefit available on certain policies that allows a provider to set your cover in place immediately if the response they receive to a series of health-related questions matches their underwriting requirements.

        It is also referred to as ‘instant life insurance cover’.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in life insurance. Ask us a question and we'll get the best expert to help.

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        Pete Mugleston

        Pete Mugleston

        Mortgage Expert, MD

        About the author

        Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

        Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

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        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.