Types of life insurance in the UK

There are two main types of life insurance in the UK: term and whole of life. A term policy runs for an agreed period. A whole of life policy lasts for the rest of your life.

Most other policies are versions of these two. Level, decreasing and increasing cover are kinds of term insurance, and so is family income benefit. Guaranteed over 50s plans are a type of whole of life plan.

Term cover is the type bought most often. ABI figures cited by the FCA show that 1.4 million of the 2 million new individual protection policies sold in 2024 were term assurance.

Term life insurance can be level, decreasing or increasing, and family income benefit is a type of term cover too. Each runs for a fixed period (the term), such as five, ten or 25 years.

If you outlive the term, the cover ends. On Aviva's Life Insurance Plan, for example, your payments stop and you get nothing back, because the policy has no cash-in value.

Level term life insurance

With level term, the sum assured (the amount paid out) stays the same throughout. A claim in the last year pays the same as one in the first. It's commonly used to protect an interest-only mortgage.

Your premiums are fixed unless the policy is reviewable. Reviewable policies tend to cost less at the start, but the price can change when the insurer reviews it.

Decreasing term life insurance

With decreasing term, the cover goes down each year. It's designed for repayment mortgages, where the loan shrinks too, and it usually costs less than level term.

With guaranteed premiums, your monthly payment stays the same while the cover falls. If you use it as mortgage life insurance, check that the interest rate the policy uses is at least as high as your mortgage rate.

Gift inter vivos insurance is a form of decreasing cover with a tax job. It can pay the Inheritance Tax that may be due if you give away money or assets and die within 7 years of the gift.

Increasing term life insurance

With increasing term, the cover rises during the term to keep up with inflation or a growing debt. Your premiums rise too.

Insurers set their own rules for the rise. Aviva follows the Consumer Prices Index (CPI) and Legal & General the Retail Prices Index (RPI), and both cap the cover increase at 10% a year.

At Aviva, the premium goes up each year by 1.5 times the CPI rise, by no more than 15% a year.

Family income benefit

Family income benefit pays your family regular payments instead of a lump sum if you die during the term. It can replace your monthly income for the people who rely on it.

After a separation, a policy that pays an income can also cover child maintenance until the payments were due to end.

The total depends on when a claim is made. At Aviva and Legal & General, the monthly payments run until the policy end date, so an early claim pays more overall than a late one.

Our family income benefit calculator shows how the total changes over the term. Aviva also lets your family swap the monthly payments for a lump sum after a claim, but it's recalculated and comes to less than the monthly total.

• Term life insurance: how term cover works and what it costs
• Level term or decreasing?: how to choose between the two
• Family income benefit: a monthly income for your family instead of a lump sum
• Short-term life insurance: cover for just a few years

Whole of life insurance, also called life assurance, covers you for the rest of your life. It pays out whenever you die, as long as you keep paying the premiums.

Premiums are usually paid for life, but some policies stop collecting them at a set age while the cover carries on. ABI figures cited by the FCA put whole of life's payout rate in 2024 close to 100%, the highest of the protection products.

It's often used for Inheritance Tax planning. It typically costs more than shorter-term policies. The FCA found underwritten whole of life premiums the highest of the pure protection products, partly because a payout is more likely.

When you apply, you answer questions about your medical history and current health (this is medical underwriting). Starting young and in good health can make the premiums cheaper. If you live longer than you expected, though, you could pay in more than it pays out.

Premiums can be guaranteed or reviewable: at Royal London, for example, you can choose either. Reviewable whole of life premiums are reviewed every five or ten years and can rise until they're unaffordable.

Legal & General's Whole of Life Protection Plan has no cash-in value. Some other whole of life plans invest your premiums and build up a cash value. You may be able to withdraw it or borrow against it (life insurance with a savings plan).

• Whole of life insurance: how lifetime cover works and what it costs
• Term vs whole of life insurance: the two compared side by side
• Life insurance with a savings plan: how investment-linked whole of life policies work

A guaranteed over 50s plan is a whole of life policy for people usually aged 50 to 85. You pay a fixed monthly premium, and it pays a fixed cash sum to the people you choose when you pass away.

Acceptance is guaranteed within the age limits. There's usually a waiting period (also called a moratorium) of 12 or 24 months. If you die during it, most insurers refund the premiums paid rather than paying the full benefit.

At Aviva and Legal & General, full cover starts after the first year. An accidental death in that year still gets the full amount; a death from any other cause gets the premiums back.

Each plan covers one person, and it has no cash-in value: if you cancel, you lose what you've paid in.

The payout is fixed, so it won't keep up with rising prices and isn't guaranteed to cover the cost of a funeral. You could also pay in more than your family gets back. In an illustrative FCA example, someone paying £30 a month for £5,000 of cover would pass that point after 13 years and 11 months.

The money is often put towards funeral costs, but your family can spend it however they wish. MoneyHelper says these plans might suit someone in poor health who doesn't expect to live long.

For healthy customers, the FCA found these plans cost on average 12% to 22% more than comparable underwritten whole of life. Below about £4,000 of cover, though, they were on average up to around £23 a year cheaper.

• Over 50 life insurance: how guaranteed plans work and what they cost
• Guaranteed life insurance: how guaranteed acceptance cover works
• Life insurance or a funeral plan?: how the two differ

A single policy covers one person. Joint life insurance covers two people under one policy, for example a couple buying a home with a joint mortgage. Aviva and Legal & General both sell their term cover in single or joint names.

If you separate or divorce, you can't divide a policy: one of you has to take it over or cancel it. Legal & General can split a joint policy into two single ones if you ask within 6 months of the divorce being finalised.

On Aviva's joint plan, if you both die at the same time, the money goes to the estate of the younger policyholder.

• Joint life insurance: one policy for two people
• Joint or single life insurance?: how to choose for a couple

Critical illness cover pays a lump sum if you're diagnosed with a condition listed in the policy. Income protection replaces part of your income while illness or an accident stops you working.

Both pay out while you're alive. Life insurance pays when you die, not when illness or disability cuts your income.

Critical illness cover

Critical illness cover runs for a set term and can be level, decreasing or increasing. It pays a tax-free lump sum, and a full claim usually ends the policy. You could use it to pay off a mortgage, pay for treatment or keep up with household bills.

It's often combined with life insurance. Accelerated cover pays out once, on diagnosis or death, whichever comes first. You can also buy stand-alone critical illness cover without life cover.

Every policy from an ABI member must cover cancer, heart attack and stroke to at least the ABI's model wordings. Back problems and stress, common reasons for time off work, aren't covered.

At Aviva, children's claims and 11 additional, less advanced conditions don't use up the one payout. The additional conditions pay a lower amount.

Income protection insurance

Income protection (also called permanent health insurance) pays you a regular, tax-free income if illness or injury stops you working. It typically pays 50% to 65% of your income.

There's often a waiting (deferred) period before payments start, most commonly 4, 13 or 26 weeks or a year. A longer wait means lower premiums. Payments continue until you can work again, retire, die or reach the end of the term.

You can claim as many times as you need while the policy lasts. It covers most illnesses that stop you working, including stress and mental health conditions, but it doesn't pay out if you're made redundant.

Mortgage payment protection insurance pays your monthly mortgage payments if you're ill or unemployed, usually for one or two years at most. It isn't the same as mortgage protection life insurance.

• Critical illness cover: what it pays out for and how claims work
• Income protection insurance: a monthly income while you can't work
• Income protection vs critical illness: which does what

They're features you add to a policy, or a legal arrangement around it, rather than separate types of cover. Check whether a quote includes each one or offers it as an option.

• Terminal illness cover lets you claim early if you're diagnosed with an illness and your life expectancy is less than 12 months. Many policies have it, whole of life plans frequently among them, and the policy ends once it pays out.
• Waiver of premium is an extra you pay a bit more for. If an accident or illness stops you working, your premiums are paid for you. On critical illness cover it usually starts only after at least six months off sick.
• Writing a policy in trust sends the payout straight to the people you've chosen, without waiting for probate (the legal process of dealing with an estate). Probate can take months. A policy in trust isn't counted as part of your estate and can be paid outside Inheritance Tax.

• Terminal illness cover: an early payout if you are terminally ill
• Waiver of premium: your premiums paid while you can't work
• Life insurance in trust: how a trust works and when it helps

It depends on what the money is for and how long you'll need it. MoneyHelper says life insurance usually makes sense for couples and parents, or if you want your loved ones to be able to cover your funeral.

It says cover wouldn't suit someone with no dependants, because the policy only pays out when you die.

What to check before you apply

1. Work out how much cover you need It depends on your mortgage or rent, other debts, take-home pay and how many people rely on you. Our life insurance calculator and whole of life insurance calculator give you an estimate.
2. Check what cover you already have Employee packages often include death in service benefit, cover linked to your salary. It stops if you leave that employer.
3. Set your priorities If covering everything costs more than you can afford, decide what matters most or choose a lower level of cover. Some protection might still be better than none.
4. Check the premium type Guaranteed premiums stay fixed. Reviewable premiums tend to start cheaper, but they can rise at a review and become unaffordable.
5. Answer every question accurately Insurers check your medical history when you claim. If you didn't answer accurately or left something out when you applied, the insurer might reduce the claim or not pay out.
6. Compare quotes Premiums vary, so it's worth comparing quotes. Our broker partner, Reassured, compares quotes from a panel of leading insurers, and its quotes are free with no obligation. A broker will call to go through them with you.