Every type of life insurance, explained honestly.

Level term life insurance pays out a fixed lump sum if you die within a fixed period. The amount you're covered for stays the same from day one to the last day of the policy. If you survive the term, the policy ends and nothing is paid out.

Let's explain the word “term” because the industry throws it around without ever defining it. A term is simply the length of time the policy lasts. If you take out a 25-year term policy, you're covered for 25 years. After that, it's over. You're not paying into a pot you get back - this is pure protection. You're paying for the insurer to carry the risk that you might die during that period.

For example: you take out £250,000 of level term cover for 25 years. If you die 3 years in, your family gets £250,000. If you die 24 years in, your family still gets £250,000. If you're still alive at year 25, the policy simply ends.

Who level term is for

• Families who want to ensure a fixed amount is available if a parent dies - enough to clear debts, replace income for a period, or provide a financial cushion
• Anyone with an interest-only mortgage (because the debt stays the same throughout, so you need a level payout to match)
• People who want straightforward, affordable cover with a guaranteed payout amount

What it typically costs

A healthy 30-year-old non-smoker might pay around £5-£15 per month for £250,000 of cover over 25 years. Costs increase significantly with age, smoking status, BMI, and medical history. A 45-year-old smoker with a medical condition could be looking at £40-£80+ per month for the same cover.

Pros and cons

Trusts and level term

This is critical. A level term policy should almost always be written in trust. Without a trust, the payout forms part of your estate when you die. That means it could be subject to 40% inheritance tax if your estate exceeds the nil-rate band (currently £325,000). It also means your family has to wait for probate to complete - often 6 to 12 months - before they can access the money. In a trust, the payout goes directly to your beneficiaries, usually within weeks, completely outside your estate. Most insurers offer trusts for free. We set them up on every call.

Decreasing term life insurance works exactly like level term, with one key difference: the payout amount decreases over time. It starts at the full amount and gradually reduces to zero by the end of the term.

This makes sense for one specific purpose: protecting a repayment mortgage. With a repayment mortgage, your outstanding balance goes down every month as you make payments. So the amount of cover you need also goes down. Decreasing term is designed to roughly mirror that declining balance. You're not paying for cover you don't need, which is why it's cheaper than level term.

One thing to be aware of: the rate at which the cover decreases is based on a set interest rate assumption. If your actual mortgage rate differs, the cover and the mortgage balance won't match perfectly. For most people, this is close enough. But it's worth understanding.

Who decreasing term is for

• Anyone with a repayment mortgage who wants the cheapest way to ensure the mortgage is paid off if they die
• People who want to protect a specific debt that reduces over time (a loan, for example)

What it typically costs

Because the insurer's risk decreases over time (they're potentially paying out less and less), premiums are lower than level term. A healthy 30-year-old might pay around £4-£10 per month for £250,000 of decreasing cover over 25 years. Roughly 20-40% cheaper than level term for the same initial amount.

Pros and cons

Trusts and decreasing term

Mortgage life insurance should be placed in trust - ideally a split trust if it includes critical illness cover, so the life and critical illness elements can be handled separately. Even though the payout is intended for the mortgage, without a trust, the money still goes into your estate and is subject to the same probate and potential IHT issues. Your mortgage lender won't wait for probate.

Whole of life insurance does exactly what it says: it covers you for your whole life. There is no fixed term. As long as you keep paying the premiums, the policy stays in force and a payout is guaranteed whenever you die - whether that's next year or in 50 years.

Because the insurer will have to pay out eventually (everyone dies), whole of life insurance is significantly more expensive than term insurance. You're paying for certainty.

There are two main types. Guaranteed whole of life has fixed premiums and a fixed payout - you know exactly what you're getting. Reviewable whole of life starts cheaper but the insurer reviews the premiums (usually every 10 years) and can increase them, sometimes dramatically. We strongly recommend guaranteed where possible - see the premiums section for more on this.

Inheritance tax and estate planning

This is the main reason people buy whole of life cover. If your estate (everything you own, including property, savings, pensions, and existing life insurance payouts not in trust) exceeds the nil-rate band, your beneficiaries will pay 40% inheritance tax on the excess. The nil-rate band is currently £325,000 per person (£650,000 for married couples/civil partners), with an additional residence nil-rate band of £175,000 per person if you're passing your home to direct descendants.

Whole of life insurance, written in trust, provides a guaranteed lump sum outside your estate that your family can use to pay the inheritance tax bill. The policy payout doesn't increase the size of the estate (because it's in trust) and gives your family the cash to settle the tax without having to sell the family home or other assets.

Who whole of life is for

• People with a potential inheritance tax liability who want to make sure their family doesn't lose a large chunk of the estate to HMRC
• Those who want a guaranteed payout regardless of when they die - for funeral costs, gifts, or to leave a specific legacy
• Estate planning as part of a broader financial strategy, often alongside wills, trusts, and pension planning

What it typically costs

Substantially more than term insurance. A 45-year-old non-smoker might pay £30-£100+ per month for £100,000 of guaranteed whole of life cover. Costs vary enormously based on age, health, and whether you choose guaranteed or reviewable premiums. Older applicants and those with health conditions will pay considerably more.

Pros and cons

Trusts are essential for whole of life

If you're buying whole of life insurance to cover an IHT bill and you don't put it in trust, you've defeated the purpose. The payout would go into your estate, increase its value, and potentially create an even larger tax bill. A discretionary trust is the most common choice for whole of life policies. It gives your trustees flexibility over who receives the payout and keeps the money firmly outside your estate. Read our full trusts guide.

Over 50s life insurance is a type of whole of life policy that guarantees acceptance. No medical questions, no health checks, no chance of being declined. You choose a monthly premium, and that determines your payout amount. You pay until you die (or reach a certain age, typically 90, after which premiums stop but cover continues).

These plans are heavily advertised on daytime television. They're positioned as a simple way to leave money for funeral costs or a small gift. And for some people, they are. But there are serious problems with these plans that the adverts don't mention, and we believe you deserve to know about them before you sign up.

When an over 50s plan does make sense

• You have a serious medical condition that means you genuinely cannot get life insurance through normal channels
• You want a small, simple policy to help with funeral costs and you understand you may pay more than you get back
• You've been declined for standard life insurance by multiple insurers

What it typically costs

Premiums range from about £10 to £50 per month, depending on your age and the payout you choose. The older you are when you start, the less you get for your money. A 50-year-old will get a higher payout for the same premium than a 70-year-old.

Trusts and over 50s plans

Even over 50s plans should be placed in trust. The same probate and IHT risks apply. Some providers offer a simple trust form as part of the application. If yours doesn't, we can help set one up. Without a trust, even a modest payout could be delayed for months while probate is processed - the opposite of what your family needs when they're arranging a funeral.

Family income benefit (FIB) is a type of term life insurance, but instead of paying out a single lump sum when you die, it pays a regular monthly income to your family from the date of your death until the end of the policy term.

Think of it this way. If you have a 20-year family income benefit policy paying £2,000 per month and you die in year 5, your family receives £2,000 per month for the remaining 15 years. If you die in year 18, they receive £2,000 per month for 2 years. The closer to the end of the term you die, the less total money is paid out. This is why it's cheaper than level term.

This structure often makes more practical sense than a lump sum. Most families don't need £300,000 on day one - they need the bills paid, the mortgage covered, and food on the table, month after month. A monthly income replicates what a salary does. There's also less risk of a large lump sum being poorly managed or spent too quickly during an incredibly difficult time.

Who family income benefit is for

• Families with young children where the main concern is replacing a parent's income until the children are grown up and independent
• People who want affordable cover that mirrors real-life financial needs
• Anyone who would prefer their family receives a steady, manageable income rather than a single large amount

What it typically costs

Family income benefit is often the most affordable type of life insurance because the total potential payout decreases over time (similar logic to decreasing term). A healthy 30-year-old non-smoker might pay around £5-£12 per month for £2,000/month of benefit over 20 years. That's up to £480,000 of potential cover in the early years for the price of a couple of coffees a week.

Pros and cons

Trusts and family income benefit

FIB policies should absolutely be placed in trust. The trust type matters here though. With a lump sum policy in trust, the money is paid to trustees who distribute it. With FIB, the monthly payments flow through the trust to the beneficiaries. Your adviser needs to ensure the right trust is used to avoid the payments being treated as taxable income. Get this right from the start and it's straightforward. Get it wrong and it can create unnecessary tax complications. More on trusts.

Joint life insurance covers two people under a single policy. It's most commonly taken out by couples - married, civil partners, or cohabiting - to protect their shared financial commitments like a mortgage or to provide for children.

There are two types, and understanding the difference matters:

First death (joint life first death)

The policy pays out when the first of the two people dies. After that, the policy ends. The surviving partner gets the payout, but they are then left with no cover. This is the most common type for couples protecting a mortgage or family finances. It's cheaper than two separate policies because the insurer only ever makes one payment.

Second death (joint life second death)

The policy only pays out when both people have died. This is used almost exclusively for inheritance tax planning. The logic is that the IHT bill only becomes due when the second spouse dies (because assets pass between spouses tax-free). So you only need the payout at that point. This type of policy is cheaper because the insurer expects to wait longer before paying out.

Who joint life is for

• First death: Couples who want to protect a shared mortgage or provide for children at the lowest possible cost
• Second death: Couples with an inheritance tax liability who want to cover the IHT bill that arises when the surviving partner eventually dies
• Business partners: Sometimes used for shareholder protection or partnership agreements

What it typically costs

A joint first-death policy typically costs 15-25% less than two equivalent single policies. The exact amount depends on both applicants' ages, health, and the type of cover. Second-death policies are cheaper still because the insurer expects to wait much longer before paying out.

Trusts and joint life

Joint life first-death policies should be written in trust so the payout goes directly to the surviving partner (or to children) without entering the deceased's estate. Joint life second-death policies are almost always used for IHT planning and must be in trust - a discretionary trust is typical. If the payout goes into the second-to-die's estate, it increases the estate value and could generate an even larger tax bill, which is exactly the problem you were trying to solve.

One important note about divorce or separation: if you have a joint policy and you split up, untangling it can be complicated. Two single policies don't have this problem. Another reason to consider separate policies from the outset.

Relevant life insurance is a life insurance policy that your employer pays for. It's particularly valuable for company directors, small business owners, and higher-rate taxpayers. The key benefit is that it's extremely tax-efficient - far more so than paying for personal life insurance out of your own taxed income.

Here's how the tax works. The company pays the premiums. Those premiums are treated as a business expense, so they reduce the company's corporation tax bill. Crucially, the benefit is not treated as a benefit in kind for the employee. That means no additional income tax, no National Insurance, and no P11D reporting. The employee gets life cover, the company gets a tax deduction, and HMRC gets less. Everyone benefits except the taxman.

Who relevant life is for

• Company directors who want life insurance but would rather the company paid for it tax-efficiently
• Higher and additional rate taxpayers where the tax savings are most significant (a 45% taxpayer paying for personal life insurance needs to earn almost £2 for every £1 of premium - with relevant life, the company pays it pre-tax)
• Small businesses that want to provide life insurance as a benefit to key employees without the cost and complexity of a group scheme
• Contractors and sole directors of limited companies who take a low salary and dividends - relevant life can provide cover based on a higher notional salary

What it typically costs

The premium itself is similar to a standard personal life insurance policy - it's based on age, health, cover amount, and term. The difference is who pays it and the tax treatment. For a company director paying 40% income tax, a relevant life policy effectively costs 50-60% less than paying for personal life insurance from taxed income, once you factor in the corporation tax relief, no income tax, and no NI.

Pros and cons

Trusts and relevant life

Relevant life policies are always written in trust - a specific relevant life trust provided by the insurer. This is what makes the tax treatment work. The trust ensures the payout goes to the employee's beneficiaries and not to the company or into the employee's estate. The trust documentation is straightforward and is part of the application process, so there's no additional cost or complexity.

Your life insurance premium - the amount you pay each month - is determined by how likely the insurer thinks you are to die during the policy term. That sounds blunt, but that's literally what it is. Everything that affects your mortality risk affects your premium.

What affects your premium

• Age: The single biggest factor. A 25-year-old will pay a fraction of what a 55-year-old pays for the same cover. Every year you delay costs more.
• Smoking status: Smokers pay roughly double what non-smokers pay. Most insurers classify you as a smoker if you've used any nicotine products (including vaping and patches) in the last 12 months. Some require 2-5 years nicotine-free.
• Health and medical history: Existing conditions, past conditions, family medical history, BMI, blood pressure, cholesterol - all factored in. See our medical conditions guides.
• Occupation and hobbies: Hazardous jobs (construction, offshore work, military) and dangerous hobbies (skydiving, motorsport, mountaineering) increase premiums or may lead to exclusions.
• Amount of cover and term length: More cover and longer terms cost more, because the insurer carries more risk.

Guaranteed vs reviewable premiums

This is one of the most important distinctions in life insurance, and many people don't understand it until it's too late.

Indexation - keeping up with inflation

Indexation (sometimes called “index linking”) is an option that increases your cover amount each year in line with inflation (usually RPI). Your premiums also increase to pay for the additional cover.

The trade-off: £250,000 of cover taken out today will be worth significantly less in 25 years due to inflation. Indexation solves this by automatically increasing your cover. But your premiums go up each year too, typically by 3-5%. Whether it's worth it depends on your budget flexibility and how concerned you are about inflation eroding your cover. Most people under 40 taking long-term policies should seriously consider it.

The age impact - why waiting costs money

Every year you delay taking out life insurance makes it more expensive. Not by a small amount either. Premiums can increase by 5-8% per year of age for healthy individuals, and more if health conditions develop in the meantime. A 30-year-old getting £250,000 of level term cover over 25 years might pay £8/month. Wait until 35 and it might be £12/month. Wait until 40 and it could be £20/month. Develop a health condition during those years and the increase is even steeper - or cover may be declined entirely.

If you need life insurance, the best time to get it is now. The second best time is tomorrow. It only gets more expensive from here.

Life insurance isn't just for families. If you run a business, the death of a key person - a co-director, a partner, or a critical employee - can be financially devastating. Business protection uses life insurance (and sometimes critical illness cover) to protect the business itself.