Term life insurance

Everything you need to know about term life insurance

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With term life insurance, you know how much cover you have and for how long from day one

Looking for life insurance?

Term life insurance is one of the most popular forms of life insurance cover. It’s often taken out alongside a mortgage, in which case the term of the life insurance policy should match the mortgage term.

However, you can also use term insurance to provide a lump sum to help your family financially if you pass away.

What is term life insurance?

Term life insurance provides a set amount of cover for a set term, or timeframe. You could, for example, take out fixed-term life insurance for a set amount of £150,000 over 40 years.

If you pass away within that 40-year period, your loved ones will receive £150,000 – as long as they’re named as beneficiaries on the policy. If you live past the term years, there’ll be no payout because the term of the cover has come to an end.

What is level-term life insurance?

With level term life insurance, your beneficiaries receive the same payout whenever you die while the policy lasts, so you know exactly how much they’ll get whenever you pass away during the term. A level-term life insurance policy makes planning easier, and is a good option if you have an interest-only mortgage on which the amount you pay off at the end of the mortgage term remains the same throughout.

Some providers also offer increasing-term life insurance. With this cover the payout increases in line with inflation to ensure your family has enough to live on.

What is decreasing-term life insurance?

Decreasing-term life insurance lasts for a set period, but the payout gets smaller over time. It is generally cheaper than level-term life insurance, which fixes the payout for the entire policy term. This makes it a popular choice for homeowners with repayment mortgages, because the amount they owe falls over time too.

You may be able to cut the cost even further by opting for a family life insurance policy that pays your beneficiaries a regular income rather than a lump sum.

Age Average premium level term Average premium decreasing term 
18-24 £6.89 £4.92
25-34 £11.25 £7.30
35-44 £17.53 £11.95
45-54 £22.91 £16.33
55-64 £29.14 £20.57

Source: MSM, July 2019 – June 2020

What’s the difference between whole-of-life and term life insurance?

Whole-of-life insurance guarantees your loved ones a lump sum whenever you die, so you know there will be a payout whatever happens. Term insurance only pays out if you pass away within the timeframe set when you take it out, which could be when your mortgage terms ends or when you retire.  

How long should life insurance last?

How long you want your life insurance to last depends largely on why you need the cover. If you’re taking out term life insurance to pay off a 25-year mortgage should you pass away, a 25-year term life insurance policy will do the trick. If you want to ensure your 11-year-old child is supported through education, a 10-year term life insurance plan may prove sufficient.

However, if you want your loved ones to receive a lump sum whenever you die, a whole-of-life policy is the best choice.

How much does term life insurance cost?

Like all life insurance, the level of the term life insurance quotes you’re offered depends on your age, your health and your lifestyle – particularly your job and whether or not you smoke or vape. The size of the payout you want your loved ones to receive also has a big impact on the size of your premiums.

When it comes to types of life insurance, level-term life insurance costs more than decreasing-term life insurance and whole-of-life insurance costs more than decreasing-term life insurance.

Can I cancel term life insurance?

You usually have 30 days to cancel a life insurance policy free of charge. After that, you can cancel at any time – although you won’t get back any premiums you’ve already paid. Just write to your insurer saying you want to cancel. If you pay by direct debit, you should also cancel the direct debit payment with your bank.

Reasons you might want to cancel a term life insurance policy include:

  • You’ve paid your mortgage off early
  • You’re struggling to afford the premiums

If paying your monthly premiums is the problem, talk to your insurer first to see if you can reduce them temporarily in return for a lower amount of cover.

How can I find the best term life insurance for me?

The best type of life insurance for you depends on why you need the cover and for how long. Find out more about level term life insurance, decreasing term life insurance, family life insurance, and whole-of-life insurance, then compare term life insurance quotes with MoneySuperMarket. And don’t forget a joint life insurance policy might offer better value for money than two separate policies.

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