What are the main types of life insurance?

The main types of life insurance are:

  • Term life insurance
  • Whole-of-life insurance
  • Single life insurance
  • Joint life insurance
  • Level term insurance
  • Decreasing term insurance
  • Increasing term insurance
  • Family income benefit
  • Over-50s life insurance
  • Death-in-service cover through an employer

They all have the same basic purpose: to provide financial support if the person covered dies and the claim meets the policy terms.

But they work in different ways.

Some policies last for a fixed number of years. Some are designed to last for life. Some cover one person. Some cover two people. Some pay a lump sum. Others are designed to provide a regular income.

Choosing the right type matters because a policy that suits one household may not suit another.

A young family with a mortgage may need a very different type of cover from an older person who wants to help with funeral costs, or a couple deciding whether to buy one joint policy or two separate single policies.

👉 [Compare life insurance options and speak to a specialist]

Why there are different types of life insurance

Life insurance is not one single product.

It is a broad category of protection that can be arranged in different ways depending on what you want the cover to do.

For example, you might want life insurance to:

  • Clear a mortgage
  • Support your partner
  • Protect children while they are young
  • Replace lost income
  • Cover funeral costs
  • Leave money to family
  • Help with inheritance planning
  • Protect a business loan
  • Provide a regular income instead of one lump sum

Because those needs are different, insurers offer different policy types.

The key is not to ask, “What is the best life insurance?”

The better question is:

What financial problem do I want the policy to solve?

Once you know that, it becomes easier to compare the main types.

Term life insurance

Term life insurance is one of the most common types of life insurance.

It covers you for a fixed period of time, known as the policy term.

For example, you might choose cover for:

  • 10 years
  • 20 years
  • 25 years
  • 30 years
  • The length of your mortgage
  • Until your children are financially independent

If you die during the policy term, and the claim is valid, the policy pays out.

If you survive to the end of the term, the policy usually ends and no payout is made.

That may sound like a drawback, but it is also why term life insurance can be a practical option for many families. It is designed to cover a specific period of financial risk.

For example, you may only need cover while:

  • Your mortgage is outstanding
  • Your children are young
  • Your partner relies on your income
  • Your family would struggle without your earnings
  • Your debts would affect someone else

Once those responsibilities reduce, the need for life insurance may also reduce.

Who is term life insurance often used for?

Term life insurance is often considered by:

  • Parents with young children
  • Homeowners with a mortgage
  • Couples who rely on each other financially
  • People with shared debts
  • Families who want affordable cover for a set period
  • People who want protection while major responsibilities exist

It can be a sensible option when the need for cover has a clear start and end point.

For example, a parent may want cover until their youngest child reaches adulthood. A homeowner may want cover until the mortgage is due to be repaid.

Term life insurance is not automatically right for everyone, but it is often the starting point for family and mortgage protection.

👉 [Check whether term life insurance fits your family’s needs]

Level term life insurance

Level term life insurance is a type of term cover where the payout amount stays the same throughout the policy term.

For example, you might choose £250,000 of cover for 25 years.

If you die in year 3, the payout is £250,000.

If you die in year 20, the payout is still £250,000.

This type of cover is often used for family protection because the amount does not reduce over time.

It can be useful if you want to leave a fixed lump sum to help with:

  • Mortgage costs
  • Household bills
  • Childcare
  • School costs
  • Future living expenses
  • General family security

Level term insurance may also suit people with an interest-only mortgage, because the mortgage balance may not reduce during the term.

Pros of level term life insurance

Level term cover can be attractive because it is simple to understand.

The amount of cover stays the same, which makes planning easier.

It can help provide a clear financial safety net for your family.

It may also be useful if you want the payout to do more than only clear a mortgage.

For example, a family may want enough money to clear debt and still have funds left for living costs.

Things to consider with level term cover

Level term life insurance may cost more than decreasing term cover because the potential payout remains the same throughout the term.

It may also provide more cover than you need later in life if your mortgage has reduced and your children are financially independent.

That does not make it wrong. It simply means the cover amount and term should be chosen carefully.

Decreasing term life insurance

Decreasing term life insurance is another type of term cover.

With this policy, the amount of cover reduces over time.

It is often used to protect a repayment mortgage, because the mortgage balance usually falls as repayments are made.

For example, if you take out a 25-year repayment mortgage, you might choose a decreasing term policy over 25 years. The idea is that the life cover reduces broadly in line with the outstanding mortgage.

If you die during the policy term, the payout can help repay the remaining mortgage balance, subject to the policy terms.

Who is decreasing term insurance often used for?

Decreasing term insurance is commonly considered by people who want to protect:

  • A repayment mortgage
  • A loan that reduces over time
  • A specific debt that is being paid down gradually

It can sometimes be cheaper than level term insurance because the amount the insurer may need to pay falls over time.

Things to consider with decreasing term cover

Decreasing term insurance may be suitable for mortgage protection, but it may not leave much extra money for your family.

That is an important point.

If the payout is only designed to match the mortgage, it may clear the debt but not provide ongoing support for:

  • Food
  • Bills
  • Childcare
  • Transport
  • School costs
  • Lost income
  • Time off work for a surviving partner

For young families, it may be worth comparing whether mortgage-only cover is enough or whether some additional family protection is needed.

👉 [Check whether mortgage-only cover is enough for your family]

Increasing term life insurance

Increasing term life insurance is designed so the cover amount rises over time.

This can help protect the value of the payout against inflation.

For example, £200,000 today may not have the same spending power in 20 years. Increasing cover attempts to address that by raising the amount of cover during the policy term.

The increase may be linked to inflation or a fixed percentage, depending on the policy.

Who might consider increasing life cover?

Increasing term cover may be considered by people who want protection for:

  • Long-term family costs
  • Future living expenses
  • Children’s future needs
  • Inflation-sensitive planning
  • Cover that keeps pace with rising costs

It can be useful where the family wants the payout to maintain value over time.

Things to consider with increasing cover

Increasing cover is usually more expensive than standard level cover, and premiums may rise over time.

That means affordability matters.

A policy is only useful if you can maintain it.

If premiums become unaffordable and the policy lapses, the protection may be lost.

Whole-of-life insurance

Whole-of-life insurance is designed to last for the rest of your life, as long as premiums continue to be paid and the policy terms are met.

Unlike term insurance, it does not end after a fixed number of years.

Because it is intended to pay out whenever you die, whole-of-life insurance is usually more expensive than term life insurance.

This type of policy is sometimes called life assurance.

What is whole-of-life insurance used for?

Whole-of-life cover may be used for:

  • Funeral costs
  • Leaving money to family
  • Estate planning
  • Inheritance tax planning
  • Providing a guaranteed payout
  • Helping beneficiaries after death
  • Long-term financial planning

It is more commonly used where someone wants cover that does not expire.

For example, a person may want to leave a guaranteed amount to children, help with final expenses, or support inheritance planning.

Things to consider with whole-of-life cover

Whole-of-life insurance can be useful, but it is not always straightforward.

Because it is intended to last for life, the premiums may be higher.

Some policies can also be more complex than basic term insurance.

Before choosing whole-of-life cover, it is important to understand:

  • How long premiums are payable
  • Whether premiums can increase
  • Whether the payout is fixed
  • Whether the policy has investment-linked features
  • What happens if you stop paying
  • Whether the policy should be written in trust
  • Whether inheritance tax planning is relevant

Whole-of-life cover can be valuable in the right circumstances, but it may be unnecessary or too expensive if your main need is temporary family or mortgage protection.

👉 [Speak to a specialist about term vs whole-of-life cover]

Single life insurance

Single life insurance covers one person.

If that person dies during the policy term, and the claim is valid, the policy pays out.

A single policy can be arranged for term life insurance or whole-of-life cover.

Single life insurance is often used by:

  • Individuals protecting their family
  • Parents who each want separate cover
  • Homeowners with personal mortgage responsibilities
  • Separated or divorced parents
  • Couples who want flexible protection
  • People with different cover needs from their partner

Why choose single life insurance?

Single policies can offer more flexibility than joint cover.

For example, two partners might each have their own policy.

If one partner dies, their policy may pay out. The surviving partner’s policy can remain in place.

This can be useful because the surviving partner may still need cover afterwards, especially if they have children or a mortgage.

Single policies can also be tailored to each person.

For example, one partner may need more cover because they earn more. The other may need cover based on childcare responsibilities or a different mortgage share.

Things to consider with single life insurance

Two single policies may cost more than one joint policy.

But they may also provide more total protection.

The right choice depends on budget, family needs and how much flexibility you want.

Joint life insurance

Joint life insurance covers two people under one policy.

It is often used by couples, spouses, civil partners or people with shared financial commitments.

Many joint policies are written on a first-death basis.

This means the policy pays out when the first person dies, then the cover ends.

For example, if a couple has a joint life policy to protect the mortgage, the payout may help clear the mortgage when the first partner dies. But after that, the surviving partner may no longer have life cover under that policy.

Who is joint life insurance often used for?

Joint life cover is often considered by:

  • Married couples
  • Civil partners
  • Unmarried couples with shared commitments
  • Homeowners with a joint mortgage
  • Parents with shared financial responsibilities
  • Couples looking for a simpler single-policy setup

It can be convenient because there is one policy and one premium.

It may also be cheaper than buying two separate single policies.

Things to consider with joint life insurance

The main drawback is that many joint policies only pay out once.

After the first death, the policy usually ends.

That can leave the surviving partner without cover, and they may be older or have health changes by then, making new cover more expensive or harder to arrange.

Joint cover can be suitable in some cases, but couples should understand this trade-off clearly.

A joint policy is not the same as two individual policies.

👉 [Compare joint life insurance with two single policies]

Family income benefit

Family income benefit is a type of life insurance that pays a regular income instead of one lump sum.

For example, instead of paying £300,000 as a lump sum, a policy might pay £2,000 per month or £24,000 per year until the end of the policy term.

This can be useful for families who want to replace income in a more structured way.

Who might consider family income benefit?

Family income benefit may appeal to:

  • Parents with young children
  • Families who want ongoing monthly support
  • Households that rely heavily on one income
  • People who prefer income replacement over a lump sum
  • Families who want help with bills, childcare and living costs

It can make budgeting easier for a surviving partner because the money arrives as regular income rather than one large payment.

Things to consider with family income benefit

The total payout depends on when the claim happens.

If the insured person dies early in the term, the family may receive payments for many years.

If they die near the end of the term, payments may only continue for a short period.

This is not necessarily a problem, but it is important to understand.

Family income benefit can work well alongside lump sum cover, but it should be chosen based on the family’s actual needs.

Over-50s life insurance

Over-50s life insurance is a type of policy aimed at people over a certain age, often with guaranteed acceptance.

These policies usually do not require medical underwriting.

They are often used to help with:

  • Funeral costs
  • Leaving a small amount to family
  • Final expenses
  • Simple later-life cover

Things to consider with over-50s cover

Over-50s plans can be useful for some people, but they need careful thought.

The payout may be relatively modest.

There may be a waiting period before the full benefit applies.

If you live for many years, you could pay more in premiums than the policy eventually pays out.

This does not automatically make the policy wrong, but it does mean you should compare it with other options.

Death-in-service cover

Death-in-service cover is a benefit some employers provide.

It usually pays a lump sum if you die while employed by that company.

The amount is often based on a multiple of your salary.

For example, it might pay two, three or four times your annual salary.

Is death-in-service the same as life insurance?

It can provide valuable protection, but it is not exactly the same as having your own personal life insurance policy.

That is because:

  • It usually ends when you leave the employer
  • The employer controls the scheme
  • The cover amount may not match your family’s needs
  • It may not be enough to clear a mortgage
  • It may not provide long-term family protection
  • Your employment situation may change

Death-in-service cover is useful and should be included when reviewing your protection.

But it may not be enough on its own.

Term vs whole-of-life insurance

The biggest difference between term and whole-of-life insurance is how long the cover lasts.

Term insurance lasts for a fixed period.

Whole-of-life insurance is designed to last for life, as long as premiums continue and the policy terms are met.

Term insurance is often used for temporary responsibilities, such as:

  • A mortgage
  • Children growing up
  • Income replacement during working years
  • Family protection for a set period

Whole-of-life insurance is often used for longer-term goals, such as:

  • Funeral costs
  • Estate planning
  • Leaving money to loved ones
  • Inheritance tax planning
  • Lifetime cover

For many young families, term insurance may be the more practical starting point.

For people with later-life planning needs, whole-of-life insurance may be worth exploring.

Neither is automatically better. They do different jobs.

Joint vs single life insurance

Another important decision is whether to choose joint cover or single policies.

A joint policy covers two people and often pays out once.

Two single policies cover each person separately and can potentially result in two payouts.

Joint cover may be:

  • Simpler
  • Cheaper
  • Useful for shared mortgage protection
  • Easier to manage as one policy

Single cover may be:

  • More flexible
  • Better if both people need separate protection
  • Useful if cover amounts should differ
  • More suitable where each person wants their own policy
  • Potentially stronger for families with children

The best choice depends on what you need the cover to do.

If the goal is only to clear a joint mortgage on first death, joint cover may be suitable.

If the goal is broader family protection, two single policies may be worth comparing.

Which type of life insurance is best?

There is no single best type of life insurance.

The right type depends on:

  • Your age
  • Your health
  • Your budget
  • Your mortgage
  • Your debts
  • Your dependants
  • Your family plans
  • Your employment benefits
  • Whether you want lump sum or income
  • Whether you need temporary or lifetime cover
  • Whether you are applying alone or as a couple

For example:

A young couple with children and a repayment mortgage may consider decreasing term cover for the mortgage and level term or family income benefit for wider family protection.

A single person with no dependants may not need life insurance at all unless they have debts, funeral-cost concerns, business commitments or future planning needs.

An older person wanting to leave money for funeral costs may look at over-50s or whole-of-life cover.

A high-net-worth individual may need advice around trusts, inheritance tax and estate planning.

The right answer depends on the financial risk being protected.

👉 [Get help comparing the main types of life insurance]

Common mistakes when choosing life insurance

 

Choosing based on price alone

The cheapest policy may not always be the most suitable.

Price matters, but so do the amount of cover, policy term, exclusions, flexibility and payout structure.

Only protecting the mortgage

Clearing the mortgage is important, but families may still need money for bills, childcare and everyday living costs.

Assuming joint cover is the same as two policies

A joint policy often pays out once and then ends.

Two single policies can provide separate cover for each person.

Ignoring the value of a stay-at-home parent

Life insurance is not only for the highest earner.

A parent who provides childcare and household support may still need cover because replacing that role can be expensive.

Forgetting to review cover

Life insurance should be reviewed after major changes such as:

  • Having children
  • Moving house
  • Taking on a larger mortgage
  • Changing jobs
  • Getting married
  • Separating
  • Becoming self-employed
  • Health changes
  • Significant changes in income

Not thinking about trusts

Writing a life insurance policy in trust can help the payout reach the intended people more directly and may have inheritance tax implications.

This is an area where guidance can be useful.

Related life insurance guides

If you are comparing the main types of life insurance, these guides may also help:

This article explains the main types of life insurance. The related guides help you compare cover amounts, mortgage protection, family income benefit, joint cover, critical illness cover, trusts and medical underwriting.

Final thoughts

The main types of life insurance are designed for different needs.

Term life insurance can protect your family or mortgage for a set number of years.

Level term cover provides a fixed payout.

Decreasing term cover is often used for repayment mortgages.

Increasing term cover can help protect against inflation.

Whole-of-life insurance is designed to last for life.

Single policies cover one person.

Joint policies cover two people but often only pay out once.

Family income benefit can provide regular income rather than one lump sum.

Over-50s plans and death-in-service cover may also form part of the wider protection picture.

The important thing is not to pick a policy because it sounds popular.

The important thing is to understand what you are trying to protect, how long the risk lasts, who depends on you, and what type of payout would actually help.

Once you know that, comparing life insurance becomes much easier.

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