What is term life insurance?

Term life insurance is a straightforward and affordable way to protect your loved ones financially. It covers you for a set period of time – say 10, 20 or 30 years – and if you pass away during that time, it pays out a tax-free lump sum to your family or chosen beneficiaries.

Unlike whole life insurance, which lasts your entire life, term life cover is temporary. That makes it a great option if you only need cover while you have big financial responsibilities, like paying off your mortgage or raising children.

You get to choose how long the cover lasts and how much it pays out, so it can fit your life and budget. It’s one of the most cost-effective ways to get life insurance – offering peace of mind for as long as you need it.

Why choose term insurance?

Term insurance is ideal if you want to make sure your family is protected financially for a set time. It’s designed as a cost-effective way to help your loved ones should you pass away within the term, such as paying off a mortgage, or covering childcare costs, school fees or general living expenses.

It’s also often much cheaper than whole life insurance, simply because it doesn’t last forever. You only pay for the cover you need, for the time you need it.

There are different types of term cover too, like level term where the sum assured (the amount paid out if you die) stays the same throughout, or decreasing term where the sum assured reduces over time - ideal for covering a repayment mortgage.

If you're looking for a straightforward way to protect your loved ones, term life insurance could be the right fit.

Reasons to choose term life insurance:

  • Pays out if you pass away during the policy term.

  • Typically more affordable than whole life cover.

  • Ideal for covering temporary financial responsibilities.

  • Flexible options: choose the term length, cover amount and type.

  • Can be tailored to fit your family’s changing needs.

What happens when the policy pays out?

When an insurance policy pays out, where the money goes depends on the type of policy you have and who it's set up to benefit.

If you take out a joint life policy, the payout usually goes to the surviving policyholder when the first person dies. There’s no second payout when the other person dies.

However, there are other types of joint policy:

  • ‘Dual life’ policies are available that pay out when the first person dies, but life cover still stays in place for the surviving partner.

  • There are also joint policies that pay only on ‘second death’ although these tend to be used for inheritance tax planning.

With a single life policy, the payout typically goes to your estate, which can delay things a little due to probate. However, you can name a specific beneficiary or have the policy written in trust to potentially speed things up and have more control over who receives the money.

Term insurance typically pays a single lump sum. However, another option is to take out a ‘family income benefit’ policy. This is a form of term insurance that pays a regular amount of money to your family or other chosen beneficiary.

What does term life insurance cover?

Typically covered

Term life insurance is designed to pay out a lump sum if you pass away during the agreed policy term. It could clear outstanding debts, replace lost household income, cover school fees… it’s up to you and your family.

Some policies also come with standard or optional extras, including:

Terminal illness cover: Typically pays out early if you’re diagnosed with a condition that’s expected to be fatal within a certain time (e.g. 12 months).

Critical illness cover: Pays out if you are diagnosed with a serious illness covered by the policy.

What isn’t covered?

While term life insurance offers valuable protection, there are a few situations where a claim may not be paid:

  • Missed payments: If you stop paying your premiums, your cover could end.

  • Suicide: Many policies exclude death by suicide within the first 12 months.

  • Fraud or non-disclosure: If you aren’t honest and accurate when applying, the insurer could refuse to pay out.

  • Excluded health conditions: Some policies may include exclusions based on your medical history, for example, if you have a pre-existing condition.

  • Outliving your policy: If you survive the policy term, the cover ends and there’s no payout.

Other events may not be covered, such as death due to war or participation in extreme sports. Please see each policy’s exclusions and limitations: always read the small print to make sure you understand the terms and conditions.

How much does term insurance cost?

Term insurance is often the most affordable way to get life cover – especially if you take it out while you're young and healthy. Your monthly premiums will depend on factors like:

Your age: The younger you are when you take out a policy, the cheaper your premiums will usually be.

Your health: Existing health conditions typically mean premiums are higher.

Your lifestyle: Lifestyle choices such as smoking can push premiums up.

Length of term: A longer policy term often means higher premiums.

Your occupation: Some occupations make life insurance more expensive.

The ‘sum assured’: A policy that pays out £250,000 will cost more than one for £100,000.

Added benefits: Adding benefits such as critical illness cover will typically increase the premium.

Single vs joint life: A joint policy is usually cheaper than taking out two single policies (but remember that it will typically pay out just once, so may offer less protection than two separate policies).

Level or decreasing cover: Policies with a decreasing sum assured (often used with mortgages) may be cheaper than policies where cover remains at the same level.

Reviewable or guaranteed premiums: Reviewable premiums typically start lower, but can rise when your payments are reviewed. Guaranteed premiums typically start off higher, but remain the same.

You may find your own quotes come in cheaper or more expensive than average premiums. The best way to find out how much cover would cost for you is to compare quotes from leading insurance companies.

How to keep costs down

Term insurance can be one of the most affordable types of life cover, and there are ways to make it even more cost-effective:

Start as early as you can: The younger you are when you take out a policy, the lower your premiums are likely to be.

Choose the right level of cover: Look at your wider financial situation, such as any savings, property or investments, and choose a level of death benefit that makes up the shortfall without buying unnecessary cover.

Pick the right term: Choose the term you need and no longer.

Be healthy: Insurers typically offer lower premiums to people who maintain a healthy lifestyle. Stopping smoking, eating well and managing any chronic health conditions may trim pounds off your premiums.

Consider a joint policy: A joint life insurance policy is often cheaper than taking out two separate policies, but coverage typically ends after the first payout.

Look at different premium options: A fixed or guaranteed premium policy might be better for budgeting and long-term cost control than a reviewable premium policy where premiums can increase.

Review your cover: If your life circumstances change, you might not need as much cover. You may be able to amend your policy, or cancel it and take out a cheaper one.

Shop around and compare quotes: Each insurer has its own pricing model, so it’s essential to compare quotes before committing to a policy. Also, some providers offer special deals, like free terminal illness cover. Don’t settle for the first quote you receive; it’s always worth exploring your options.

By making a few smart choices, you can reduce your premiums without compromising on the protection you need.

Things to consider

While term life insurance works well for many people, it’s not the best fit for everyone. Here are a few things to bear in mind:

It only covers a set period: If you live beyond the policy term, there's no payout and no return on the premiums paid. You may prefer whole life insurance if you want cover for your entire life.

No cash value: Unlike some whole life policies, term cover doesn’t build up savings or investment value.

Keep up your payments: If you miss a premium payment, your cover could stop. Some policies offer a grace period, but if premiums aren’t paid, the insurer might cancel the policy or refuse a payout.

Be honest in your application: Insurers can decline claims if key details were incorrect or left out when you applied.

Check the fine print: Look out for things like exclusion periods, such as not paying out for suicide within the first 12 months. Make sure you understand what is and isn’t covered.

Other types of insurance may be more suitable: If you want lifelong cover, or something that includes a savings or investment component, whole life insurance could be worth considering.

If you’re unsure about whether term insurance is right for you, seeking advice from a qualified financial adviser can help ensure you’re making the right decision.

Life insurance guides

Answering your questions about term insurance

Page updated on 6th November 2025, Reviewed by Richard Groom