Term life insurance

Term life insurance at a glance

Term life insurance pays a cash lump sum if you die during a chosen period. It is designed to help your family keep up with the mortgage, rent, and daily bills, or to fund childcare and education costs if the worst happens. The cover is straightforward, typically with fixed premiums for the term, and you choose the amount and length that suit your goals.

In 2025, the average UK monthly premium for a £150,000 sum assured is around £20.82. Level term cover tends to cost more than decreasing term cover because the benefit stays the same over time. Decreasing term can align with a repayment mortgage and is usually cheaper. Premiums rise with age and with longer terms, so it can be cost-effective to arrange cover earlier in life rather than waiting.

Insurers in the UK are regulated and closely monitored for financial strength. Recent stress testing shows the sector remains resilient, which helps give confidence that valid claims are likely to be paid even in challenging markets.

This guide sets realistic expectations. We explain what term insurance covers, where it may not apply, and how to choose between key options without overpaying. There is no hard sell here - just clear information to help you decide if cover suits your household, budget, and priorities.

Insurance can offer real protection, but only when you understand what is covered and where gaps may exist.

What is covered and how it works

Term life insurance pays out if you die within the policy term. You choose a benefit amount and the length of cover. Most policies pay a single tax-free lump sum to your beneficiaries or into a trust you have set up. Payments are typically fixed from the start, unless you select increasing cover where premiums and benefits rise in line with inflation.

Common inclusions are death from illness or accident. Suicide is usually covered after an initial exclusion period, often 12 months. Decreasing term reduces the benefit over time, often matching a repayment mortgage. Level term keeps the benefit fixed, which can help with broader family living costs or interest-only debt.

Policies do not generally pay out for terminal illness unless the policy includes a terminal illness benefit, which many do. This usually pays the death benefit early if you are diagnosed with a terminal condition that meets the policy definition. Critical illness cover is a separate add-on and increases premiums because claims are more likely.

When a claim is made, insurers will ask for the death certificate and policy details. They may also request medical records to confirm eligibility. If everything matches the policy terms and disclosures, payouts are typically made promptly to the chosen recipients.

Who is likely to benefit

Term life insurance is particularly useful for people with financial dependants. If you have a partner, children, or others who rely on your income, a policy can help them manage the mortgage, rent, and bills if you die during the term. It is also helpful if you have loans or a mortgage that would be difficult for your family to cover alone.

Younger non-smokers generally pay lower premiums, so arranging cover earlier can lock in affordability for a longer period. Single people with no dependants may not need cover, unless they want to protect a co-signed debt or leave a specific legacy. If you have substantial savings or assets that already meet your dependants’ needs, you might decide a smaller sum assured is sufficient.

Choosing your cover

1. Basic - Decreasing term

• Best for: Repayment mortgages and reducing debts.
• Benefit: Sum assured reduces over time in line with debt.
• Cost: Generally the lowest premiums compared with other options.
• Consider: May not fully cover expenses that do not decrease, like childcare.

2. Standard - Level term

• Best for: Income replacement, education costs, and fixed financial goals.
• Benefit: Sum assured stays the same throughout the term.
• Cost: Typically higher than decreasing term due to level benefit.
• Consider: Choose a term that covers key milestones, like children reaching adulthood.

3. Inflation-linked - Increasing cover

• Best for: Protecting buying power against inflation.
• Benefit: Sum assured increases annually, often with RPI-linked rises.
• Cost: Higher starting premiums and annual increases.
• Consider: Check the maximum annual uplift and how premiums escalate.

4. Joint life vs single life

• Joint life pays once, usually on first death - cost-effective for couples.
• Single life policies can provide two payouts and more flexibility.
• Consider: The balance between cost and the total potential benefit for your household.

5. Optional extras - Critical illness cover

• Adds a payout on diagnosis of listed serious illnesses.
• Increases premiums due to higher claim likelihood.
• Consider waiting periods, illness definitions, and partial payouts.

6. Trusts and beneficiaries

• Writing a policy in trust can speed up payment to loved ones.
• May help with inheritance tax planning - seek professional guidance if unsure.

Costs and what influences your premium

Typical UK trends are shown below. Figures are illustrative and not personal quotes.

Many UK adults overestimate life insurance costs - real quotes can be lower than expected.

Can you apply - and what to expect

Most UK residents aged 18 to around 77 can apply, although maximum ages and terms vary by insurer. You will provide personal details, health history, smoking status, occupation, and your GP information. Some applications are accepted instantly, while others may require a nurse screening, medical reports, or a short GP assessment.

Common decline reasons include undisclosed medical conditions, significant recent health events, hazardous activities, or non-payment of premiums on past policies. If you have health concerns, an insurer may offer cover with exclusions or a higher premium instead of a decline. Honesty is essential, as inaccurate disclosures can lead to a reduced payout or a claim being declined.

From quote to claim - the simple path

1. Use a reputable comparison tool to estimate your cover needs and budget.
2. Choose level or decreasing term based on debts and dependants’ expenses.
3. Decide the sum assured and term that match your goals and timeframe.
4. Select single or joint cover and consider critical illness add-on carefully.
5. Complete health questions accurately and consent to medical checks if requested.
6. Review the Key Facts and policy documents before agreeing to buy.
7. Set beneficiaries or place the policy in trust to speed up payouts.
8. Keep documents safe and tell your family how to claim if needed.

Benefits and trade-offs at a glance

Key checks before you commit

Before buying, read the Key Facts document and the policy wording slowly. Confirm what counts as a covered death, terminal illness terms, and any waiting periods. Check whether premiums are guaranteed or reviewable, and how increases work if you choose an index-linked benefit. Understand exclusions, especially early suicide clauses and non-disclosure consequences. Review renewal or replacement costs if you expect to extend cover later. Make sure your nominated beneficiaries or trust details are correct, and keep proofs of identity and address ready in case the insurer needs verification during a claim.

Alternatives and related cover

1. Whole of life insurance - Lifetime cover with a guaranteed payout, typically higher premiums. Suitable for estate planning and final expenses rather than time-limited needs.
2. Family income benefit - Pays a tax-free monthly income instead of a lump sum. Useful for budgeting ongoing household costs.
3. Income protection - Replaces part of your income if illness or injury stops you working. Complements life cover by protecting day-to-day cash flow.
4. Critical illness cover - Pays a lump sum on diagnosis of listed serious illnesses. Can be combined with decreasing or level term.

FAQs

Q: How much cover do I need? A: Many people consider enough to clear debts and provide several years of household expenses. A common approach is to match a repayment mortgage and add a buffer for childcare and bills.

Q: Is decreasing term right for my mortgage? A: It often suits repayment mortgages because the cover reduces as the debt falls. If you need funds for ongoing costs, consider level term or a mix of both types.

Q: Do premiums change during the term? A: With guaranteed premiums, the monthly amount stays the same. If you choose index-linked cover, both the premium and benefit increase annually in line with inflation measures stated in the policy.

Q: Can I add critical illness later? A: Some insurers allow changes, but adding critical illness usually requires fresh underwriting and may increase premiums. Check flexibility at the outset if you think your needs could evolve.

Q: Are UK insurers financially secure? A: Recent stress testing shows UK life insurers remain well capitalised, supporting a high likelihood of paying valid claims even during market shocks. Always check each provider’s financial strength and claims track record.

Q: Why do quotes vary so much between insurers? A: Each insurer uses its own underwriting and pricing models. Differences in age bands, health loadings, and optional features can change the premium, so comparing like-for-like terms is important.

What to do next

Decide the protection goal, then compare like-for-like quotes for the right term, cover amount, and features. Read the Key Facts and policy wording closely and consider writing the policy in trust. If unsure, speak to a regulated adviser who can assess your needs and help you avoid over or under-insuring.

Important information

This guide is for general information only and is not personal financial advice. Policy terms, eligibility, and prices vary by insurer. Always read the Key Facts and full policy wording, and consider regulated advice before making a decision.