Choosing life insurance can feel overwhelming. With different policies promising different levels of protection, it’s easy to wonder which one actually fits your life. The good news is that most people only need to understand a handful of main options. Once you know how they work, comparing costs, benefits and coverage becomes far clearer.
Life insurance pays out a sum of money if you die while the policy is active. The money goes to the people you choose usually a partner, children or other dependants to help with the mortgage, living costs, childcare or other financial gaps. The most common types are term life insurance (including level, decreasing, and family income benefit), whole-of-life cover, and over-50s plans. Each serves a different purpose and comes with its own price tag.
Term Life Insurance: The Most Popular Choice
Term life insurance covers you for a set number of years often 10, 20, or 25 years that you choose when you take out the policy. If you die during that term, your beneficiaries receive a payout. If you outlive the term, the policy simply ends, and there is usually no return of premiums. It is the most affordable and widely used form of cover because insurers only take on the risk for a limited period.
Level term insurance
The payout stays fixed for the whole term. Take $250,000 of cover for 25 years and your family receives that amount whether you die in year one or year 24. Insurance premiums are usually fixed too.
It suits replacing lost income, covering an interest-only mortgage, or providing a lump sum for childcare and living costs. A healthy non-smoker around 35 can often get $250,000 of cover for 25 years for roughly $12–$18 a month, depending on age, health, and lifestyle.
Decreasing term insurance
The payout reduces over time, usually in line with a repayment mortgage. As the outstanding debt falls, so does the potential payout. This makes premiums typically 30–50% cheaper than level terms for similar starting cover.
It’s a practical, cost-effective choice if your main goal is clearing the mortgage. Many people pair it with a separate level term or family income benefit policy so the family still has money for day-to-day costs once the house is paid off.
Increasing term insurance
The cover amount rises each year, usually in line with inflation (RPI or CPI) or by a fixed percentage. This helps protect the real value of the payout against rising prices. Premiums also increase over time. It is less common than the other two but useful if you want long-term protection that keeps pace with the cost of living.
Family Income Benefit: Regular Income Cover
Family income benefit is a form of term insurance that pays a monthly or annual income rather than one big lump sum. You choose how much income your family would need and for how long. If you die during the term, payments start and continue until the policy end date. The later in the term the claim occurs, the shorter the remaining payment period and therefore the lower the total amount paid out. This structure usually makes it cheaper than an equivalent level term policy.
Many families prefer the steady income because it feels more manageable than investing or budgeting a large single payment. It is particularly helpful for single-income households with young children.
Whole of Life Insurance: Cover That Never Ends
Whole life insurance has no fixed end date. As long as you keep paying the premiums, the policy pays out whenever you die. Because a claim is certain to happen one day, premiums are significantly higher than term cover, often several times more expensive for the same sum assured.
There are two broad approaches. Guaranteed whole-of-life policies have fixed premiums and a fixed payout. Reviewable versions may start cheaper, but the insurer can increase premiums at set review dates, which can make them unpredictable.
The whole of life is most often used for inheritance tax planning. When written in trust, the payout usually sits outside your estate and can help beneficiaries pay any tax bill without having to sell assets quickly. It is also chosen by people who want to leave a guaranteed sum for funeral costs or as a gift, regardless of when they die.
Over-50s Life Insurance Plans
These are simplified whole-of-life policies for people aged 50 to 80 or 85. Acceptance is usually guaranteed with no medical questions, though a waiting period applies before the full payout is available for natural causes.
A cover is modest, typically $5,000 to $25,000, and mainly helps with funeral costs. Premiums are fixed and continue for life. While convenient, total premiums can sometimes exceed the payout if you live a long time, so compare carefully with standard whole-of-life options if you’re in reasonable health.
How the Main Types Compare
| Type | Payout style | Typical cost (healthy 35-year-old non-smoker) | Best for | Duration |
| Level term | Fixed lump sum | $12–$20 for$250k | Income replacement, family needs | Fixed term |
| Decreasing term | Reducing lump sum | Lower than level term | Repayment mortgage | Fixed term |
| Family income benefit | Monthly income | Often competitive with level term | Replacing salary for dependants | Fixed term |
| Whole of life | Fixed lump sum | $40–$80+ for$100k | IHT planning, guaranteed payout | Lifetime |
| Over-50s plan | Fixed (smaller) sum | $15–$40 | Funeral costs, guaranteed acceptance | Lifetime |
Costs are illustrative only. Your own premium depends on age, health, smoking status, occupation, amount of cover and term length. Smokers and older applicants pay more. Adding critical illness cover can roughly double or triple the premium.
Factors That Affect Cost and What to Look For
Age is the biggest driver. Taking cover earlier usually locks in lower rates. Health and lifestyle matter too insurers ask about medical history, height and weight, smoking and certain hobbies. Joint policies covering two people on a first-death basis are often cheaper than two separate single policies, but two single policies generally provide better overall protection because each person remains covered after the first death.
Writing the policy in trust is almost always worthwhile. It can help the money reach your beneficiaries more quickly and may keep it outside your estate for inheritance tax purposes. Most insurers offer this free of charge.
Choosing the Right Cover for Your Situation
Start by working out what financial gaps would appear if you were no longer around. Mortgage balance, childcare costs, lost income and any other debts or commitments all matter. Many people find a combination works best decreasing term for the mortgage plus level term or family income benefit for day-to-day living costs.
Review your cover every few years or after major life changes such as marriage, having children, moving house or divorce. Needs change, and so should the policy.
Key Takeaways
Term life insurance offers affordable cover for a set period, while whole-of-life and over-50s plans provide lifelong protection at a higher cost. Choose a policy that fits your needs and budget, understand the cover, and consider placing it in trust to help protect your loved ones.
