The five types at a glance
Pays: A fixed lump sum if you die within the term
Best for: Family protection, interest-only mortgages, replacing lost income
The sum assured never changes, so inflation erodes its real value over a long term unless you add indexation.
Pays: A lump sum that falls over the term, roughly tracking a repayment mortgage
Best for: Covering a repayment mortgage and nothing else
The cheapest way to cover a repayment mortgage. Check the assumed interest rate — if your mortgage rate exceeds it, the cover can fall faster than the debt.
Pays: A monthly income to your dependants for the rest of the term
Best for: Replacing a salary for children still at home
Often the cheapest way to protect a family, and easier for a bereaved partner to manage than a large lump sum.
Pays: A lump sum whenever you die — there is no term
Best for: Funeral costs, leaving a guaranteed legacy, inheritance tax planning
Guaranteed to pay out, so it is materially more expensive. Reviewable versions can raise premiums sharply later in life.
Pays: A modest fixed sum, with acceptance guaranteed and no medical questions
Best for: Small funeral costs where health rules out underwritten cover
Premiums can total more than the payout if you live long enough, and there is normally no payout in the first one to two years.
Level vs decreasing: match the shape of the debt
The difference is simply whether the payout stays flat or falls.
A repayment mortgage shrinks every month, so the amount of cover it needs shrinks too. Decreasing term follows that curve and costs less because of it. One thing to check: the policy assumes an interest rate when it sets the rate of decrease. If your mortgage rate rises well above that assumption, your balance falls more slowly than the cover does.
An interest-only mortgage does not shrink at all, so it needs level term for the full balance until the end of the term.
Income replacement and family costs also do not shrink neatly, which is why level term or family income benefit is the usual answer for the family protection layer sitting on top of the mortgage cover.
Why family income benefit is underused
Family income benefit pays a monthly amount from your death to the end of the term rather than one lump sum. If a policy pays £2,000 a month and you die with twelve years left to run, your dependants receive £2,000 a month for those twelve years.
It is usually cheaper than the equivalent lump sum, because the insurer's total liability falls as the term runs down. It also solves a practical problem: handing a grieving partner a six-figure cheque and expecting them to invest it to produce an income is a lot to ask, while a monthly payment simply replaces the salary that stopped.
The trade-off is that it will not clear a mortgage on day one. Most families that use it pair it with decreasing term for the mortgage.
Joint vs two single policies
- ✔ Cheaper than two policies
- ✔ One premium, one piece of admin
- ✗ Pays once, on the first death, then ends
- ✗ Survivor must re-apply at an older age and in whatever health they are then in
- ✗ Messy to unpick if you separate
- ✔ Two potential payouts, not one
- ✔ Cover survives the first claim
- ✔ Each can be written in trust separately
- ✔ Fully portable if circumstances change
- ✗ Costs more than a joint policy
What affects the premium
- Age — the single biggest factor, and the reason cover bought at 30 is dramatically cheaper than the same cover at 45
- Smoker status — typically the largest health-related loading; twelve months smoke-free usually restores non-smoker rates
- Health and family history — disclosed at underwriting and, in some cases, checked with your GP
- Sum assured and term — more cover for longer costs more
- Cover type — decreasing term is cheaper than level term; whole of life is the most expensive
- Add-ons — critical illness cover attached to a life policy often costs more than the life element itself
Disclose everything at application. Failing to mention a condition is the most common reason a claim is disputed, and it costs your family the payout at the worst possible moment.
Frequently asked questions
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