Types of life insurance explained

Life insurance can seem to come in dozens of varieties, but almost all of them are a version of two ideas: cover that lasts a set time, and cover that lasts for life. Get that distinction and the rest falls into place.

Term cover

cover ends

Pays out only if you die within the set term

Whole of life cover

Designed to pay out whenever you die

NowLater life

Term life insurance

Term life insurance covers you for a fixed number of years, the term, and pays a tax free lump sum only if you die within it. If you outlive the term, it pays nothing and simply ends. It is by far the most popular type, with around 1.4 million new policies taken out in 2025, because it is cheap and it matches most real needs, like covering a mortgage or raising children.4 It comes in a few forms.

• Level term. The payout stays the same for the whole term. Good for family protection or an interest only mortgage, where the amount needed does not fall.
• Decreasing term. The payout falls over time, roughly tracking a repayment mortgage down. It is the cheapest cover, and is often sold as mortgage life insurance.
• Increasing term. The payout rises each year, usually in line with inflation, to protect the real value of the cover. It costs more than level term.
• Family income benefit. Instead of one lump sum, it pays your family a regular monthly income for the rest of the term. It is often cheaper than equivalent level term, and can be easier for a family to manage than a single large sum.

Whole of life insurance

Whole of life insurance has no end date. It is designed to pay out when you die, provided the policy remains in force and its terms are met, such as keeping up the premiums. Because it has no end date, it is the most expensive type, averaging about 102 pounds a month.1 It is generally used for things that do not go away, such as covering funeral costs, leaving a legacy, or paying an expected inheritance tax bill. Because of that last use, whole of life cover is often written in trust, which can keep the payout outside your estate.

Over 50s life insurance

Over 50s plans are a form of whole of life cover aimed at people aged roughly 50 to 80. The draw is guaranteed acceptance with no medical and no health questions. The trade offs are real, though. The sum is usually small, there is a waiting period in the first year or two during which only accidental death is covered, and because you pay for life, you can pay in more than the policy pays out if you live a long time. They average about 29 pounds a month.1 Treat them as a way to cover a funeral or leave a small gift, not as an investment.

Critical illness and income protection

Two other types are often bought alongside life cover, though they protect against living events rather than death.

• Critical illness cover pays a lump sum if you are diagnosed with a serious illness named in the policy, such as cancer, a heart attack or a stroke. It can be added to a life policy or bought on its own.
• Income protection pays a regular income if illness or injury stops you working, usually until you recover, retire or the policy ends. It protects your earnings rather than leaving a lump sum.

Single or joint policies

Any of these can usually be set up for one person or two. A joint life policy covers a couple and is typically around 10 percent cheaper than two single policies, but it pays out only once, usually on the first death, and then ends. Two single policies cost a little more but each pays out, which can leave the survivor still covered.

Types at a glance

The main types side by side. Costs are explained in full in the next section.

What each type costs

Price depends mostly on two things: the type you choose, and your age when you start. The type sets the ballpark, from decreasing term at the cheap end to whole of life at the dear end.

Decreasing term

£16.58

Level term

£25.05

Over 50s plan

£29.45

Whole of life

£102

published 2026 UK market pricing, average monthly premiums for £150,000 of cover, all ages and smoking statuses blended.1

Age is the next big lever. Premiums roughly double every decade you wait, because the chance of a claim rises. This table shows how decreasing term cover climbs with age for the same cover.

published 2026 UK age-based pricing, decreasing term, £150,000 of cover over 20 years, non smoker in good health.2

Smoking is the other big factor. For level term cover, a non smoker pays about 15 pounds a month on average against about 35 pounds for a smoker, more than double for the same cover.1 You can see how much life insurance costs in more detail for your own situation.

Which type is right for you

Start from the need, not the name.

• Covering a repayment mortgage: decreasing term, the cheapest fit for a falling debt.
• Protecting a family or an interest only mortgage: level term, or family income benefit if a monthly income suits better.
• Covering a funeral or an inheritance tax bill: whole of life cover, or an over 50s plan for a smaller sum with no medical.
• Worried about illness rather than death: critical illness cover or income protection.

Many people use more than one, such as decreasing term for the mortgage plus level term for the family. There is no single right answer, only the right fit for what you are protecting.

Common questions

What are the main types of life insurance?

The two main types are term cover, which lasts a set period, and whole of life cover, which lasts for life. Most other options, such as decreasing term, family income benefit and over 50s plans, are variations on those two.

Which type is cheapest?

Decreasing term is usually the cheapest, averaging about 17 pounds a month, because the payout falls over time. Whole of life is the most expensive, averaging about 102 pounds, because it has no end date.

Which type pays out whenever you die?

Whole of life cover, including over 50s plans, is designed to pay out when you die, provided the policy remains in force and its terms are met, such as keeping up the premiums. Term cover pays only if you die within the term, and nothing if you outlive it.

What is the difference between level and decreasing term?

Level term keeps the same payout for the whole term. Decreasing term reduces over time, which suits a repayment mortgage and makes it cheaper.

Do over 50s plans need a medical?

No. They are guaranteed acceptance with no medical or health questions. The trade offs are a waiting period in the first year or two and the risk of paying in more than the policy pays out if you live a long time.

Can I combine different types?

Yes. There is no limit on the number of policies you can hold, and many people combine types, for example decreasing term for the mortgage and level term for the family.

Deciding what is right for you

Two questions settle most of it. How long do you need cover for, and does the need last for life? Term cover is built for a set need, like a mortgage or young children, and costs less. Whole of life is built for a need that never goes away, like a funeral or an inheritance tax bill. From there, the exact type is matched to the shape of the need, and comparing a few insurers shows the price.

Which type of cover is right for you depends on your personal circumstances. Cover, price and eligibility depend on your age, health, occupation and smoker status, and on insurer terms. Tax treatment depends on your circumstances and can change. Life Adviser is operated by PJG Financial Ltd, which is authorised and regulated by the Financial Conduct Authority, FRN 919697.