Types of Life Insurance in the UK: Which Policy Do You Need?

Choosing the right life insurance policy can be overwhelming, especially with so many options available in the UK market. From term insurance to whole of life cover, this guide explains the main types of life insurance policies in clear, simple terms — including how they work, what they cover, and who they’re best suited for.

By the end, you'll know exactly what each type of life insurance means, how to compare them, and how to find the right policy to protect your loved ones financially — both now and in the future.

What Is Life Insurance?

Life insurance is a financial product designed to pay out a lump sum or regular payments (known as a “death benefit”) to your family or other beneficiaries if you pass away while the policy is active. The aim is to help your loved ones cover key costs like:

• Mortgage repayments

• Rent and household bills

• Childcare and school fees

• Funeral expenses

• Lost income or inheritance planning

Some policies also include critical illness cover, allowing a payout if you’re diagnosed with a serious illness during the term.

Main Types of Life Insurance Policies in the UK

Understanding the different types of policies is key to choosing the right one for your circumstances.

1. Level Term Life Insurance

How it works: This policy pays a fixed lump sum if you die within the agreed term (e.g., 10, 20 or 30 years). The payout remains the same throughout the policy term.

Best for:

• Covering a mortgage with fixed payments

• Protecting a family’s lifestyle

• Leaving a set amount to dependants

Things to know:

• No payout if you outlive the term

• Premiums are fixed but can be higher than decreasing term

Read our guide on: What Is Level Term Life Insurance?

2. Decreasing Term Life Insurance

How it works: The payout reduces over time — typically in line with a repayment mortgage — and is often cheaper than level term cover.

Best for:

• Covering repayment mortgages

• Parents who want affordable family cover

• Those seeking a cost-effective policy

Things to know:

• Payout declines over time, so not suitable for general inheritance planning

• Usually more affordable than level term

Read our guide on: Life Insurance for Mortgage Protection

3. Increasing Term Life Insurance

How it works: The payout increases over time, usually to keep pace with inflation. This protects the value of the policy in real terms.

Best for:

• Long-term financial planning

• Those concerned about inflation eroding the payout

• Young families with growing financial responsibilities

Things to know:

• Premiums rise each year

• Payout value adjusts annually (RPI or CPI linked)

4. Whole of Life Insurance

How it works: This policy guarantees a payout whenever you die — as long as premiums are maintained. It doesn’t expire, unlike term cover.

Best for:

• Inheritance tax planning

• Funeral costs

• Lifelong financial protection for dependants

Things to know:

• Premiums are usually higher than term insurance

• Good option for people over 50 or estate planning

Unique Tip : Some people use whole of life cover to offset their inheritance tax bill, especially if the policy is written in trust. This can prevent a tax charge on the payout. Read more at GOV.UK – Inheritance Tax.

Read our guide on: Whole of Life Insurance Explained

5. Over 50s Life Insurance

How it works: Guaranteed acceptance for UK residents aged 50–85. No medical questions asked.

Best for:

• Older adults with health conditions

• Covering funeral costs

• Leaving a small lump sum

Things to know:

• Waiting period (typically 1 or 2 years) before full cover

• Payouts are relatively small (often £2,000–£10,000)

Read our guide on: Over 50s Life Insurance – Pros and Cons

6. Family Income Benefit

How it works: Instead of a lump sum, your loved ones receive regular monthly or annual payments if you die during the policy term.

Best for:

• Replacing lost income for dependants

• Budget-friendly protection for families

• Those who prefer steady payments over a lump sum

Things to know:

• Less popular than lump sum policies but often cheaper

• Can be tailored to your family’s needs

Read our guide on: Family Income Benefit Explained

7. Joint Life Insurance

How it works: Covers two people (usually partners) under one policy. Pays out once — usually on the first death.

Best for:

• Couples with shared financial commitments

• Mortgage protection

• Cost-effective cover compared to two single policies

Things to know:

• Only one payout

• Not suitable if both lives need separate cover amounts

Read our guide on: Joint vs Single Life Insurance – What’s Best for Couples?

8. Critical Illness Cover (Add-On or Standalone)

How it works: Provides a lump sum if you're diagnosed with a serious illness like cancer, stroke, or heart attack (conditions vary by insurer).

Best for:

• People with dependants

• Covering treatment costs or lost income

• Those with no access to employer sick pay

Things to know:

• Must meet insurer’s specific definition of illness

• Usually more expensive when added to life cover

Read our guide on: Is Critical Illness Cover Worth It?

What Type of Life Insurance Do You Need?

This depends on your personal circumstances, but ask yourself:

• Do you have a mortgage? → Consider decreasing term.

• Do you have dependants? → Level term or family income benefit.

• Are you older or in poor health? → Over 50s or whole of life.

• Want to cover inheritance tax? → Whole of life (written in trust).

• Do you prefer monthly payments to a lump sum? → Family income benefit.

• Need protection against illness? → Add critical illness cover.

Common Mistakes to Avoid

• Choosing the cheapest option without understanding the cover

• Not reviewing policies regularly as life circumstances change

• Failing to write policies in trust, which can delay payouts or increase inheritance tax

• Forgetting to update beneficiaries after major life events

Insider Tip: Don’t Over-Insure

Many people buy more cover than they need, especially when choosing a policy based on emotion rather than numbers. Use tools like the MoneyHelper Budget Planner to calculate how much your family would actually need to maintain their lifestyle.

FAQ: Life Insurance Types in the UK

Q: Can I combine multiple types of life insurance?

Yes. For example, you could combine level term cover with critical illness cover or add a separate over 50s plan later in life.

Q: What happens if I miss a premium payment?

Most policies lapse if you miss payments, and you may not get a refund. Always check your policy terms.

Q: Is life insurance taxable in the UK?

Usually not — but it could be subject to inheritance tax if not written in trust. Visit Gov.uk – Inheritance Tax for guidance.

Q: How much life insurance cover do I need?

A general rule is 10–12 times your annual income, but use a budget calculator to assess your specific needs.

Q: Can I get life insurance if I have a medical condition?

Yes, though it may cost more. Some insurers specialise in high-risk applicants.

Q: Is it better to get a joint or single life policy?

Joint is often cheaper but pays out once. Two single policies offer more flexibility and double the payout potential.

Final Thoughts: Choosing the Right Life Insurance for You

Life insurance isn’t one-size-fits-all — the best policy for you depends on your personal situation, financial responsibilities, and long-term goals. Whether you’re looking to protect a young family, clear a mortgage, or leave a financial legacy, there’s a policy type designed to meet your needs.

Take time to assess how much cover you need and how long for. Consider whether a lump sum or regular income would be more helpful for your family. And don’t just focus on price — the cheapest policy may not provide the cover your loved ones truly need.

When you're ready to explore providers, look for insurers regulated by the Financial Conduct Authority (FCA), which you can verify on the FCA Register. You may also want to speak to a financial adviser or broker for tailored guidance.

Making the right choice now means peace of mind for the future — knowing your family will be financially secure, no matter what happens.

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