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What is term life insurance?

Term life insurance offers cover for a specific length of time, known as the ‘term’. It differs to whole life insurance, which does not have an expiry date.

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What is term life insurance?

There are two principle types of life insurance: term life and whole life. We’re looking at what term life insurance is, what it is used for and whether it’s the right kind of policy for you.

The ‘term’ of ‘term insurance’ refers to the amount of time the policy runs for, which is defined by you and your insurer when the policy is taken out. It’s also known as a policy’s ‘lifetime’. Depending on what you want your payout to be put towards, the length of your term can be longer or shorter, however there will always be a maximum possible length depending on the insurer.

These policies are designed to pay out if you die during their lifetimes. However, if you die after the term has expired, then your provider will not pay out.

The advantage of term life over whole life – which insures you for however long you live – is that premiums are usually cheaper and the different types of term policy are designed to be used for specific ends.

What are the types of term life insurance?


Post Office offer three types of term life insurance:

Decreasing term life cover

Decreasing term life cover is designed to pay off an outstanding debt like a repayment mortgage and so decreases in value as your mortgage repayments become smaller.

Level term life cover

Level term offers a fixed cash lump sum payable upon the death of the policy holder. Like decreasing, it can be used to pay off debts, however it’s also used to leave a legacy or help your loved ones cope with a range of financial considerations.

Increasing term life cover

The difference between level and increasing term cover payouts increase in line with inflation over the life of your policy, giving you the same real-terms value at the point of claim as at the beginning of the policy.

The right life insurance for you will depend on what you need cover for, how much you need and over what period. Use our life insurance calculator to find out how much cover you may need based on your circumstances.

Term life insurance vs whole life insurance

It is never an enjoyable prospect to envisage how much longer you’ve got to live, and with advances in medicine it’s not something that one can easily predict. However, after a certain age, the likelihood of living a further 50 years diminishes. Taking out term life insurance at this stage is likely to be far less expensive than a whole life assurance policy that would cover the same period of time.

Term life is also used only for its payout. Whole life policies invariably include a “cash value” – or an amount that can be borrowed against while the policy holder is alive. This can mean that whole life insurance policies are significantly more expensive for the same amount of cover.

Term life only functions as insurance (it can’t be borrowed against or have attached savings accounts, for instance) and is generally more affordable.

How do I know if I need term life cover?

If you’ve found yourself thinking about buying life insurance, then in all likelihood you have started to assess what financial situation you would leave your loved ones in should you no longer be around.

It’s always a good idea to take stock of your financial situation, even if there is no particular cause to do so. The amount of money you leave loved ones will have a significant impact on their lives, and may help when making decisions on important life choices, such as whether they will be able to stay in the same school or continue to live in the house they are used to.

Consider the amount of money you are likely to leave and compare it to the ongoing cost of living that will continue after you’ve gone. Check your employer’s death-in-service policy to see how much it would leave your loved ones with, as well as factoring in any savings, investments and saleable assets you may have.

Compare that to your financial obligations, such as mortgage repayments, day-to-day living expenses and contracts. Try to be as thorough as possible as even things like insuring, taxing, servicing and running a car can potentially cost thousands of pounds.

It is quite possible that you discover that your loved ones ability to finance life as they know it would change dramatically without your income, even if you are well-off. If you find yourself in this position, then buying life insurance may become a serious consideration.

Term life cover, critical illness and terminal illness

Insurers differ in how they cover critical and terminal illnesses. Post Office Life Cover offers protection against terminal illness as standard and Critical Illness Benefit can be purchased as an add-on.

Critical illnesses are defined very specifically by each insurer, and while they’re broadly the same, they might have important differences. Read our definition of a critical illness for further information.

Critical Illness Benefit from the Post Office can give you 25% of your overall payout if you are diagnosed with a critical illness. This can be a lifeline when times are at their hardest, and help you to meet financial obligations should you need (or have) to take time off work. It can also help with things like transport and adjusting your home.

What does a term life insurance quote consider?

To get a term life insurance policy, a number of factors will have to be considered to assess your situation and level of risk.

The most important factors will be:

  • your age
  • your lifestyle, including whether you are a smoker
  • any pre-existing medical conditions
  • your health
  • you and your family’s medical history
  • your job
  • and whether or not you have a mortgage.

Some of these are in order to judge how much of a risk you pose to the insurer. Smokers, for instance, are likely to attract higher premiums than non-smokers, and people with certain pre-existing medical conditions may find it hard to get covered. Similarly, certain professions (such as soldiers) are not covered by many ‘standard terms’ policies.

If you only want term life insurance to cover your outstanding mortgage repayments, then you won’t need to pay for a £500,000 cash lump sum as well. Therefore, decreasing term life cover might be an option to consider. It’s important to work out how much cover you would need to make sure your mortgage repayments are covered.

Term life insurance for peace of mind

Once you’ve got your term life insurance policy, you can relax in the knowledge that, should anything happen to you, those you care most about can manage. Peace of mind is a priceless commodity, particularly where finances are concerned, so don’t leave it.

Protect what matters, like your loved ones and lifestyle, in case the unexpected happens.

Other ways to get covered

Post Office Life Insurance

Choose between level, decreasing or increasing term insurance, each designed to offer you peace of mind based on your circumstances.

Find out more

Post Office Over 50s Life Insurance

If you're aged between 50 and 80 Post Office could help you to leave your family the gift of a cash sum or help towards your funeral costs.

Find out more

 

Free Life Cover for Parents

If you have children aged under four years old, you could get £15,000 of life cover free for a year.

Free Parent Life Cover

Critical Illness Cover

Get extra protection and financial peace of mind by adding optional Critical Illness Cover to your Post Office Money Life Insurance.

Critical Illness Benefit

Still have questions?

You can find more life insurance articles at Post Office My Family.

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