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Different types of life insurance

Different types of life insurance

When thinking about  life insurance, it’s important to understand all of your  options – starting with the question of whether you’d like the cover amount to stay the same throughout the length of a policy, or decrease over time. Our simple guide explains the difference between the three main types of life insurance.

Kamran Altaf
From the Life team
minute read
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Posted 15 APRIL 2020

What are the main types of life insurance?

The three main types of policy  to choose between are:

Level term life insurance
Level term life insurance offers a  fixed amount of money, for a fixed period of time, that you pre-select.  If you die within the chosen time period, the policy pays out a lump sum to your beneficiaries. This is useful if you want to leave your loved ones a pay-out so that they can continue to meet debts, such as bills or an interest-only mortgage. If you survive the policy term, this type of cover won’t usually pay out.

Decreasing-term cover
Decreasing term insurance is another type of fixed term policy aimed at people whose financial commitments reduce over time. For example, if you’re repaying a mortgage. The  amount of money needed after you die to cover the mortgage will decrease  as your mortgage decreases. Learn more about life insurance and mortgages.

Whole of life cover
Also called whole of life insurance, this  policy lasts as long as you do and always pays out if you die (as long as you’re kept up with monthly payments). They’re often used to offset inheritance tax payments. While this type of policy could offer you certainty that there’ll be a financial payment to your loved ones, the downside is, for that reason, they’re more expensive than say decreasing term cover.

What other types of life insurance cover are there?

There’s a wide range of other types of life insurance policies to shop around for. The most suitable one for you will depend on your individual circumstances. Here are some that you should consider:

  • Critical illness cover 
    Designed to provide security if you fall seriously ill or become disabled, critical illness cover pays a tax-free, one-off payment to help pay off a mortgage or make amends to your home to live comfortably. 
  • Joint life insurance 
    Suitable for married couples, or those in a civil partnership, joint life cover is a life insurance policy that covers two people, but only pays out once. With joint life cover, you secure the future of the survivor, no matter which of you dies first. 
  • Family income cover 
    If you’re the primary earner or sole income in your home, you may want to consider income protection insurance. Income protection cover supports you and your family if you suddenly become unable to work, perhaps through illness or redundancy. Offering a tax-free alternative income, this policy allows you to continue paying your monthly outgoings. 
  • Over 50s  life insurance 
    Secure the future of your close relatives by taking out an over 50s life insurance policy. This type of policy is popular because you’re guaranteed to be accepted, regardless of your health and lifestyle. 
  • Death in service cover 
    Sometimes offered as a company benefit through your employer, death in service cover provides a lump sum that could be up to five times your annual salary. You must be on the company’s payroll to qualify for this cover. 

Which type of policy is best for me?

Deciding which type of life insurance is right for you and your family depends on how much money you think you’ll need to support your dependants if you were to pass away. This sum should take into account their living costs, as well as any outstanding debts or repayment plans.

What affects the cost of life insurance?

There are  many things  that affect the monthly premium you’ll pay. As well as the level of cover you want and how long you’d like it to last – your age, family health history and lifestyle will all be taken into account. 

When should I get life insurance?

There’s no such thing as the ‘right’ age to get life insurance. Typically, people tend to think about life insurance after moving house, getting married or having a baby. But, generally speaking, it’s a case of the sooner the better, as you’re more likely to be offered a lower monthly premium when you’re younger as you’re seen as less of a risk to an insurance provider.  

Where can I compare life insurance?

Having a life insurance policy offers you peace of mind that if you were to pass away, you’ll be leaving your dependents with adequate financial support. We’re here to make comparing life insurance cover as quick and simple as it can be. 

Compare life insurance

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