Term life insurance

If you want life insurance cover for a fixed period of time, for example while you’re paying off your mortgage or you have children living at home, then a term life insurance policy may suit you.

How it works

When you take out a term life insurance policy you choose the length of the term, and the size you would like the payout to be if you die.

You’ll pay a regular premium for the duration of the term and if you die during that time, your chosen beneficiaries will receive a payout (the payout is sometimes called the sum assured).

If you don’t die during the term of the policy, neither you nor your beneficiaries will receive anything.

Types of term life insurance

There are two main types of term life insurance:

  • Level term: the size of the payout remains the same, or “level”, whether you die at the beginning or the end of the term. Because the size of the payout remains the same throughout the term, level term life insurance is typically more expensive than decreasing term life insurance. Visit our guide to find out more.
  • Decreasing term: the size of the payout decreases during the term of the policy. This type of term life insurance is also known as “mortgage protection insurance” or “mortgage life insurance” because it is often to provide cover for the term of a mortgage. As your mortgage debt decreases over time, so does the size of the payout and the premium you pay. Visit our guide to find out more.

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There are also other less common types of term life insurance available:

  • Increasing term: the size of the payout increases as the term goes on.
  • Convertible term: you can convert your term life insurance policy into a whole-of-life policy. The insurer is obliged to let you do this, regardless of health issues – but your premiums may increase when you convert.
  • Renewable: at the end of the term you can take out a new term policy without providing any fresh evidence of health issues.
  • Family income benefit: a type of decreasing term life insurance, but instead of your beneficiaries receiving a lump sum payout if you pass away during the term, they’ll receive a regular income for a fixed amount of time. This is generally a cheaper option than a standard decreasing term life insurance policy.

Single or joint?

You can take out a single term life insurance policy, that will pay out on your death, or you can take out a joint policy with a partner, which will payout if one of you dies during the term.

A joint policy can be a cheaper option than two single policies, but there are a few things to consider:

  • If your relationship ends you can't 'split' the policy, and if one person stops paying their share of the premiums the other will have to make up the difference.
  • If you should both die at the same time (for example in a car accident) your beneficiaries would only receive a payout for one of you.

This type of policy can be useful if you want to make sure that the surviving partner could cope if one of you died while your children were still young. Visit our guide to joint term life insurance for more information.

Next steps

If you think you need life insurance, it's important to compare quotes from a range of different providers. Our quote tool lets you instantly compare providers from across the market, with quotes tailored to your circumstances.

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Last updated: 22 September 2015