What types of life insurance are there?
There are two main types of life insurance. You’ll want to choose the one that’s right for your finances and family.
Term life insurance
With term life insurance, you are covered for a set period of time, usually between 10 years and 25 years, and choose a cover amount. The insurer will pay out on a valid claim if you die during that time.
There is decreasing, level or increasing term life insurance, depending on what you need the sum to cover:
- Decreasing cover is designed to cover a repayment mortgage or other loan you pay off over time. So the amount the policy would pay out also decreases over time, broadly in line with what you owe.
- Level cover is a fixed lump sum that might help your family maintain their standard of living and go towards regular outgoings and more. The cover amount stays the same for the whole policy term.
- Increasing cover lets you protect the cover amount from the effects of inflation, so it won’t buy less over time. The cover amount rises alongside the inflation rate or by a fixed amount each year, and your premiums rise to reflect that (usually up to a maximum amount).
It’s important to know that if you outlive a term life insurance policy, you won’t get a payout or your premiums back. The policy only pays out if you die during the term you’re covered. If your policy also has a terminal illness benefit, it will pay out if you are diagnosed with a terminal illness with a certain life expectancy.
Whole of life insurance
Also called life assurance, this cover pays out a lump sum when you die, whenever you die. This means a guaranteed payout, provided you keep up with your premiums. Over 50s life insurance is a type of whole of life cover. While this might sound a safer bet, whole of life policies tend to cost more than term life insurance.
» MORE: How to choose the right type of life insurance