Types of life insurance
There are many types of life insurance to consider. It's important to choose the right one for you.
Whatever your situation, it's worth considering if you'd want to leave something behind for your loved ones after you've gone. There are many life insurance options available, so it's important to consider a policy that's right for you.
What are the different types of life insurance?
Life insurance policies are designed to cover a particular scenario. Thinking about it this way could make it easier to understand each type of policy.
Let’s say you’re buying or renting a home, or have young children, and you want a policy in place to pay off the mortgage or cover the cost of raising your children. Term life insurance covers you for a set period of time which could be the length of your mortgage or until your children are grown up.
Or you could be nearing retirement and want to leave a little behind for a loved one when you die. Over 50 life insurance, sometimes called ‘whole of life’ cover is a policy that provides some cover for as long as you live.
These are just a couple of examples so let’s look more closely at the common types of life insurance.
Term life insurance
It’s the most common type of life insurance and lasts a set number of years, known as the ‘term’. The most popular types of cover we offer are:
Decreasing term life cover
You’re most likely to buy decreasing term life insurance when you take out a mortgage, or another loan that you pay off over time. It could help to pay off the balance of a repayment mortgage if you die during the term and is especially common if you’re buying a home with a partner. The policy usually lasts as long as your mortgage and the payout generally reduces in line with your mortgage as you pay it off.
The good news is your monthly premiums (the amount you pay) remains the same throughout the life of your policy, so if you’re paying £12 a month now, you’ll still be paying that at the end of your policy.
Level term life cover
Level term, also known as family protection insurance, is also a term cover product, but the payout doesn’t reduce over time. You can choose how long you want the policy for and your premiums stay the same as well but you’ll probably pay a little more for level term life insurance.
It’s great if you want to provide that little bit of extra protection for loved ones, especially if you have children. The cover could be used to help towards their education, clothes, hobbies etc. as they grow up, following a claim.
Increasing term life
This one is a life insurance for a set period, but this time the payout increases during the term.
The cost of living increases over time – known as inflation – which means your money now won’t go as far in the future as prices rise. With increasing term life insurance your payout increases in line with inflation but it does mean your premiums generally increase as well.
It’s a great option if you want to leave a lump sum for your loved ones if you die during the policy term. As with Level cover, the payout could significantly help your loved ones after you're gone - from affording your child's education to supporting a sibling or ageing parent. There's no cash-in-value at any time, so if your payments stop, so does your cover.
Joint life insurance
Joint life insurance covers you and a partner on one policy. It’s sometimes cheaper than buying two policies and there’s only one premium to pay each month.
You can buy joint life insurance on a level, increasing or decreasing term basis and there’s usually an option to add on critical illness cover too.
It's worth bearing in mind that joint policies only pay the full cover amount once. After that, the policy will end and there'll be no cover for the surviving partner.
Critical illness cover
You’ve may have heard of critical illness cover which can be bought on its own or at the same time as life insurance. What it does is pay you a lump sum while you’re alive if you become seriously ill with an illness or injury covered by the policy.
It’s more expensive than life insurance but it’s hard to put a value on the peace of mind if you’re unable to work and reliant on your income each month. A lump sum at a challenging time could help take the pressure off paying bills and living costs.
The policy will pay out as long as your illness or injury meets the policy conditions. Our Critical Illness Plan covers 52 conditions. If you're diagnosed with any of these, you will receive a pay-out. We also cover children on the policy for no additional cost. There is no cash-in-value at any time, and if your payments stop, so does your cover.
Over 50 life cover
Over 50 life insurance covers you for the rest of your life. With our Over 50s Life Insurance, you only pay premiums for a maximum of 30 years, or until the policy anniversary following your 90th birthday. What you pay each month stays the same. As long as you're a permanent UK resident and aged 50-80, we can cover you for the rest of your life. This could be helpful for giving family a small windfall when you die. There is no cash-in-value at any time, and if your payments stop, so does your cover.
Income protection insurance
Income protection provides a monthly ‘income’ from the policy if you’re ill or injured and unable to work.
If you’re self-employed or would be relying on statutory sick pay, income protection could help guard against financial hardship if you’re not earning an income each month.
Our Living Costs Protection policy replaces some but not all of your income. Its regular payouts could help you pay essential bills like your mortgage, rent and other outgoings such as utilities and food.
You'll be asked to confirm your chosen deferral period. This is how long you wait between the first day you’re unable to work and the first day your payments begin.
You’ll usually pay a cheaper premium if you defer the payment for a longer period so it’s important to think about how long you could manage financially before needing the monthly top up. There is no cash-in-value at any time, and if your payments stop, so does your cover.
What type of life insurance do I need?
It really comes down to your personal circumstances and what you want the cover for. There’s no right or wrong type of life insurance, and, as we’ve seen, you can have more than one type of policy at the same time.
Having the right life insurance cover in place can give you peace of mind that your loved ones will be financially supported once you’re no longer around.
Next article
Paying out when you need it
Should the worst happen, you and your loved ones won’t have to worry about paying the bills.
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