Term vs whole of life insurance: what's the difference?

Neither is better for everyone. Term cover fits a need that ends, such as a mortgage, and whole of life fits one that lasts as long as you do, though it typically costs more.

Term life insurance, also called term assurance, covers you for a fixed period such as five, ten or 25 years. If you die during that term, it pays a lump sum to your beneficiaries (the people who receive the payout).

The Financial Conduct Authority (FCA) says term policies are typically set up for around 25 to 30 years at first, often to match a mortgage term. Outlive the term and the policy ends without paying out, as Legal & General says of its own term cover.

Whole of life insurance, also known as life assurance, covers your entire life. It pays out a lump sum whenever you die, as long as you keep paying the premiums.

The FCA classes both as pure protection products (insurance with no savings or investment element). If you stop paying the premiums on either type, the policy lapses and pays nothing, however long you've held it.

Each insurer sets its own age and term limits, and some sell terms as short as one year. Here are the limits at four insurers that sell both kinds of cover.

• Term life insurance: how term cover works and the main types
• Whole of life insurance: cover that lasts for the rest of your life
• Types of life insurance: every type of cover compared

Whole of life is typically the more expensive of the two. The FCA found that underwritten whole of life (where you answer health questions) has the highest premiums of the pure protection products.

That's because the sum assured (the payout) is typically higher. It's also more likely to be paid, as the policy covers you whenever you die rather than for a set period.

For both types of cover, your monthly payments depend on your age, health, lifestyle, occupation, family medical history, policy length and whether you smoke. Whole of life premiums can be cheaper if you start while you're young and in good health.

Before choosing whole of life, check how the payments work over the years:

• Whole of life premiums are typically paid for the rest of your life, though some policies set an age when payments stop and the cover carries on. Legal & General says you need to be sure you can pay the premiums on its Whole of Life Protection Plan until you die.
• If you live longer than expected, you could pay in more than the policy pays out, as MoneyHelper and Aviva both point out. In Legal & General's example, £50 a month for 30 years adds up to £18,000 in premiums.
• Aviva, Legal & General, Royal London, Vitality and Zurich offer guaranteed whole of life premiums. These stay the same unless you change the policy or choose increasing cover. At Vitality they can also change at each plan anniversary with your Vitality status, and with Premium Step they start lower and rise by 2.5% on each plan anniversary.
• Some whole of life premiums are reviewable instead. MoneyHelper says these are reviewed every five or ten years and can rise until they're unaffordable. On Royal London's Pegasus plan, reviewable premiums are fixed for 10 years, then reviewed every five years, with no limit on how far they can rise.
• Level term premiums stay fixed unless the policy is reviewable, and reviewable policies tend to be cheaper to buy.
• If you stop paying, the cover ends and you get nothing back. On Legal & General's Whole of Life Protection Plan, cover ends 60 days after the first missed premium.

The FCA also estimated the claims ratio, the share of projected premiums expected to come back as claims. It puts whole of life at 66% and term assurance at 60%.

• Whole of life 66%
• Term assurance 60%
• Accelerated critical illness 59%
• Guaranteed acceptance over 50s 52%

Claims ratio by type of cover

	Claims ratio
Whole of life	66%
Term assurance	60%
Accelerated critical illness	59%
Guaranteed acceptance over 50s	52%

FCA estimates from its pure protection study (January 2026).

Term cover fits needs with an end date, such as a mortgage or raising school-age children. MoneyHelper says life insurance suits you if you have dependants or a partner who relies on your income, and wouldn't suit someone with no dependants.

Term assurance was the most commonly bought pure protection product in 2023. ABI figures cited by the FCA put the average term assurance claim that year at £54,600. Term cover comes in several types:

• Level term pays the same lump sum throughout the term if you die within it. MoneyHelper calls it the simplest option.
• Decreasing term reduces the cover each year, in step with a repayment mortgage. The ABI says it usually costs less than level term.
• Increasing term raises both your cover and your premiums over the term to keep pace with inflation or a growing debt.
• Family income benefit pays your dependants regular payments instead of a single lump sum if you die during the term.
• Gift inter vivos cover is a type of decreasing term that covers potential Inheritance Tax on gifts if you die within 7 years.

Some policies can be extended when the term finishes. Renewable term assurance lets you extend for a further term without new medical underwriting (fresh health checks), even if your health has changed.

Zurich, for example, sells a Renewal Option at extra cost on its Personal Protection Life Cover. You can renew as many times as you like before age 70, as long as the policy term ends before age 90 (or 75 with critical illness cover).

Zurich won't ask about changes to your personal circumstances when you renew, though your premiums are likely to rise. The option isn't available on decreasing cover, family income cover or joint life second event policies.

• Term life insurance
• Mortgage life insurance: cover that pays off your mortgage
• Level term or decreasing?

Whole of life fits needs that last as long as you do, because it pays out whenever you die. Aviva, Legal & General and Zurich describe their plans as a way to help with an Inheritance Tax bill or funeral planning costs, leave a gift or protect your family's lifestyle and living expenses.

Royal London says its Pegasus Whole of Life Plan can also protect a business against the financial effects of your death. Cover limits differ too. Level cover on Aviva's Whole of Life Insurance+ runs from £30,000 to £10,000,000, and Royal London's Pegasus plan has no upper limit unless you choose increasing cover, when the maximum is £5 million.

When you apply for underwritten whole of life, you answer questions about your medical history and current health (at Aviva, health and lifestyle questions). These policies frequently include terminal illness benefit, which pays the full amount early if you're diagnosed with a terminal illness and have a life expectancy of less than 12 months.

Aviva's Whole of Life Insurance+ and Zurich Whole of Life are sold through financial advisers. Aviva also sells whole of life directly, but only to customers aged 50 to 80. If you're under 50, it says a financial adviser or broker could help.

• Whole of life insurance
• Terminal illness cover
• Life insurance with a savings plan

Whole of life is often used to cover an Inheritance Tax bill on your estate. Term cover is often used for the potential tax on large gifts made in the last 7 years.

Inheritance Tax is a tax on the estate (property, money and possessions) of someone who has died. There's normally no tax if the estate is below the £325,000 threshold, and the standard rate on the part above it is 40%.

There's also normally no Inheritance Tax if everything above the £325,000 threshold goes to a spouse, civil partner, charity or community amateur sports club.

Life insurance payouts aren't taxed themselves, but they may be added to the value of your estate and be subject to Inheritance Tax. HMRC's manual says that when you're the person insured, the payout forms part of your estate and is taxable on your death.

A policy under a trust deed isn't treated as part of your estate. It can be paid outside probate (the legal right to deal with an estate) and Inheritance Tax. That can speed up the claim and let the payout go towards a potential Inheritance Tax bill without adding to it.

Royal London and Vitality say a whole of life plan in trust can help your loved ones pay Inheritance Tax. To estimate the bill on your estate, try our whole of life insurance calculator.

For couples, Legal & General says a joint whole of life plan for Inheritance Tax needs to be set up on a joint life second death basis, so it pays out when the second of you passes away. Tax may not be payable when an estate passes to a UK-domiciled spouse or civil partner, so the bill may not arise until then.

Term insurance is often used to cover potential Inheritance Tax on large gifts made in the last 7 years. Under the 7 year rule, no tax is due on gifts if you live for 7 years after giving them, unless the gift is part of a trust.

• Life insurance in trust
• Is life insurance taxable?
• Gift inter vivos insurance
• How much can you gift tax free?

A guaranteed over 50s plan is a type of whole of life policy for people usually aged 50 to 85. Unlike underwritten whole of life, it doesn't ask about your health and acceptance is guaranteed.

The ABI calls them guaranteed whole of life plans. ABI figures cited by the FCA show about 0.2 million whole of life policies sold in 2024, mostly over 50s plans, with around 36,000 underwritten.

Those averages per £1,000 aren't a like-for-like comparison. The FCA says underwritten whole of life typically has higher premiums but a much higher sum assured. The gap also partly reflects that over 50s plans are typically taken out for a shorter period, and whole of life at a younger age.

The FCA also compared guaranteed over 50s plans against comparable underwritten whole of life policies. For healthy customers, over 50s plans cost 12% to 22% more on average, or around £25.50 to £47.60 a year. At lower levels of cover, particularly below £4,000, they were on average up to around £23 a year cheaper.

At Aviva and Legal & General, the over 50s plan pays the full cover after the first year. If you pass away in that first year, Legal & General refunds the premiums paid. Aviva does the same unless the death is caused by an accident, when it pays the full cover.

MoneyHelper says over 50s plans usually aren't considered good value. If you buy in your 50s and live to an average age of 80 or above, you end up paying in much more than the plan pays out. It also says they might suit you if you're in poor health and don't expect to live long, as they don't ask about your health.

• Over 50 life insurance: guaranteed plans and other options after 50
• Guaranteed life insurance
• Over 50 life insurance calculator

Yes. You can hold both at once, and some term policies can be converted into whole of life. Legal & General says there's no limit on how many life insurance policies you can have.

No law stops you holding policies with more than one provider, and a claim could be made on each. Aviva says each policy is separate, with its own monthly premium, and a new application may ask whether you already have cover with another insurer.

With both, a term policy can cover a need that ends, such as the years your children depend on you, and a whole of life policy a need that lasts. Couples have a similar choice between joint and single cover: joint life cover only pays out on the first death, while two single policies would each pay out.

With Vitality's Personal Protection Plan, you choose at the start whether your life cover is fixed term or whole of life. Some term policies can also be converted later.

Zurich's Conversion Option, added at extra cost on its Personal Protection Life Cover, lets you convert to Zurich Whole of Life up to the day before your 84th birthday. Zurich won't ask about changes to your personal circumstances, but your premiums will rise because they're based on your age when you use it.

The option isn't available on decreasing cover, family income cover or joint life second event policies, and you can't combine it with Zurich's Renewal Option on the same policy.

Without a conversion option, switching means applying for a new policy. Replacement cover might cost more, as prices generally rise with age, and a new policy might not cover pre-existing medical conditions (health problems you already have). As you get older or develop medical problems, MoneyHelper says it might be cheaper to keep a policy you bought when you were younger.

• More than one life insurance policy
• Joint or single life insurance?
• Life insurance companies: reviews and profiles of UK insurers

Before you apply or switch, check how long your needs will last, whether the premiums can rise and what happens to any policy you already have.

1. Work out what you need to protect and for how long How much cover you need depends on your debts, your mortgage or rent, how many dependants you have and your income. If you can't afford to cover everything, MoneyHelper suggests thinking about your priorities or choosing a lower level of cover. The life insurance calculator can help you work out an amount.
2. Compare quotes and check how each plan is sold Premiums vary, so MoneyHelper suggests shopping around and comparing quotes. Some whole of life plans, such as Royal London's, are only sold through a financial adviser.
3. Answer every health and lifestyle question in full Insurers check your medical history when you claim. If you didn't answer truthfully or accurately when you applied, or left something out, the insurer might not pay out.
4. Keep your existing policy until any new one has started If you're switching, MoneyHelper suggests keeping your old policy until the replacement is fully set up and you've made the first monthly payment. Once you cancel a policy, you can't change your mind, and you won't get back the premiums you've already paid.
5. Use the 30-day cooling-off period if you change your mind Under FCA rules, you can cancel a pure protection policy within 30 days without penalty or giving a reason. MoneyHelper says you'll get a full refund.