Term insurance pays out if you die during a set period, and nothing if you outlive it, which is why it costs far less than cover that lasts for life. The main choice is between level term and decreasing term, and it depends on what the cover is meant to replace.
Level term life insurance meaning
The level term life insurance meaning in plain terms is that the amount paid out stays the same throughout the policy term. If you die in year two or year twenty-two of a 25-year policy, the payout is the same. It suits needs that don't shrink, such as an interest-only mortgage, family living costs or a legacy.
Decreasing term cover
With decreasing term, the payout falls over time, usually in line with a repayment mortgage, so the cover ends close to when the debt is cleared. It is usually cheaper than level term, and the premium normally stays the same while the payout falls. It is the right match for a repayment mortgage and the wrong one for replacing income.
Level term life insurance or decreasing: which one?
| Your need | Better fit |
|---|---|
| A repayment mortgage only | Decreasing term |
| An interest-only mortgage | Level term |
| Family income and children's costs | Level term |
| A mortgage and a family | A decreasing policy for the mortgage plus a level policy for the family |
Life insurance isn't a legal requirement for getting a mortgage in the UK, although a lender may make it a condition of an offer.
Term life insurance quotes online
Term life insurance quotes online depend on your age, health, smoking status, the amount of cover and the length of the term. Answer every health question honestly, because leaving out medical details can give the insurer grounds to refuse a claim. Compare level term life insurance quotes and decreasing quotes for the same amount and term, check what is excluded, and ask about extras such as terminal illness cover, which many policies include. Don't choose on price alone.
Write it in trust
Writing a policy in trust keeps the payout outside your estate, so it generally avoids inheritance tax, charged at 40% above the nil-rate band, and can be paid faster without waiting for probate. Most UK insurers provide a free trust form when you apply.
Before you buy
- Add up the debts you want covered and the years of income your family would need.
- Match the term to the mortgage, or to the years until your children are independent.
- Consider whether you also need cover for illness or injury; see our guide to income protection and disability insurance.
- Get quotes for the same amount and term, and answer health questions fully.