Types of Life Insurance Explained
Choosing the right life insurance policy can feel overwhelming, especially if you’ve never arranged cover before.
One of the most common questions we hear is:
“What type of life insurance do I need?”
The answer depends on your circumstances, your financial commitments and what you’re trying to protect. Whether you’re buying your first home, starting a family or reviewing your existing protection, understanding the different types of life insurance available can make it much easier to choose a policy that suits both your mortgage and your family’s financial needs.
Key Takeaways
- There are several different types of life insurance available in the UK.
- The best policy depends on your personal circumstances and financial goals.
- Mortgage protection is one of the most common reasons people take out life insurance.
- Life insurance can often be combined with critical illness cover and income protection.
- Speaking to a specialist adviser can help you choose the most appropriate policy.
What Are The Different Types Of Life Insurance?
There are several different types of life insurance available in the UK, each designed to protect you and your family in different ways.
The most common types of life insurance include:
- Level term life insurance
- Decreasing term life insurance
- Increasing term life insurance
- Whole of life insurance
- Joint life insurance
- Single life insurance
Each type of life insurance policy offers different benefits depending on your circumstances.
Level Term Life Insurance
Level term life insurance pays a fixed lump sum if you die during the policy term.
For example, if you take out £300,000 of cover over 25 years, the payout remains £300,000 throughout the life of the policy.
This type of life insurance is often suitable for:
- Family protection
- Interest-only mortgages
- Providing financial security for dependants
Because the amount of cover stays the same throughout the policy, level term life insurance is often chosen by people who want certainty about the amount their loved ones would receive.
Decreasing Term Life Insurance
Decreasing term life insurance is one of the most popular types of life insurance for homeowners. The amount of cover gradually reduces over time, broadly in line with a repayment mortgage balance. This is why decreasing term life insurance is one of the most common choices for homeowners with a repayment mortgage. Because the insurer’s potential payout reduces each year, premiums are often lower than level term policies. Many borrowers choose this type of life insurance to help ensure their mortgage could be repaid if they were to die during the policy term.
Increasing Term Life Insurance
With increasing term life insurance, the amount of cover rises over time. This is usually linked to inflation, helping maintain the real value of the payout throughout the policy. This may be appropriate for people who want their life insurance cover to keep pace with rising living costs.
Whole Of Life Insurance
Unlike term insurance, whole of life insurance has no fixed end date. Provided premiums continue to be paid, the policy is designed to pay out whenever you die.
Whole of life insurance is often used for:
- Estate planning
- Leaving money to loved ones
- Helping cover potential inheritance tax liabilities
Joint Life Insurance
Joint life insurance covers two people under a single policy. Most joint policies pay out on the first death, after which the policy usually ends. This can be a cost-effective solution for couples buying a home together. However, some couples prefer separate policies because each person remains covered independently if one policy pays out.
Single Life Insurance
Single life insurance covers one individual. Many couples choose separate policies rather than joint cover, as this can provide greater flexibility if circumstances change in the future.
What Type Of Life Insurance Is Best?
There is no single policy that is best for everyone. The most suitable type of life insurance depends on factors including:
- Whether you have a mortgage
- Your family situation
- Your income
- Outstanding debts
- Long-term financial goals
For many homeowners, decreasing term life insurance provides an affordable way to protect a repayment mortgage. However, someone with an interest-only mortgage may benefit more from level term life insurance. The best type of life insurance is the one that provides the right level of protection for your circumstances, rather than simply the cheapest premium.
What Type Of Life Insurance Do I Need?
When deciding what type of life insurance you need, consider questions such as:
- Who relies on your income?
- Would your family be able to afford the mortgage without you?
- Do you have young children?
- Would you like to leave a financial legacy?
The answers to these questions can help determine the most appropriate level and type of cover.
Should You Combine Life Insurance With Other Protection?
Many homeowners choose to combine life insurance with other forms of protection.
These may include:
- Critical illness cover
- Income protection insurance
While life insurance pays out if you die during the policy term, critical illness cover may provide a lump sum following a specified serious illness, and income protection can help replace part of your income if you’re unable to work due to illness or injury. Together, these products can provide more comprehensive financial protection.
Why Professional Advice Matters
With so many different types of life insurance policies available, choosing the right one can sometimes feel confusing.
An experienced adviser can help you understand:
- Which type of life insurance is most suitable
- How much cover you may need
- Whether to choose single or joint cover
- Whether additional protection should be considered
An adviser can also ensure your life insurance complements your mortgage, rather than leaving you underinsured or paying for cover you don’t need.
Oportfolio Insight
At Oportfolio Mortgages, we regularly help clients arrange life insurance alongside their mortgage.
In our experience, many people initially focus on finding the cheapest policy. However, the most important decision is choosing the right type of life insurance for your mortgage, family and long-term financial goals.
The right policy should reflect your mortgage, your family and your long-term financial goals.
Speak To Oportfolio Mortgages
If you’re unsure what type of life insurance you need, we’re here to help. Our advisers can explain the different types of life insurance available, recommend suitable protection for your circumstances and help ensure your mortgage and loved ones are financially protected. We’ll take the time to understand your circumstances before recommending protection that’s tailored to your mortgage, your budget and your family’s future.
