Types of life insurance

If you need to know the difference between term life and whole of life, or have been wondering if you need terminal illness or critical illness cover, then please read on.

life insurance options

Different types of life insurance explained

If you want to continue to make sure your family are looked after if you’re no longer around to help them, then you should consider taking out a life insurance policy. There are many different types of life insurance policy, so to help you decide which one best suits you, we’ve created an easy-to-understand guide to the different types of life insurance you can buy.

Taking out life insurance is a way of giving you peace of mind. With life insurance you pay into a policy, and then this policy will pay out to a chosen person or people if something unfortunate, such as death or critical illness, happens to you.

Life is complicated and can be unpredictable, and so different types of life insurance have been created that match your needs. Let’s take a quick look at the different kinds of life insurance policies to find out if there’s one that suits you.

Types of life insurance

  • Term life insurance is a life cover policy that runs for a specified amount of time, or 'term'
  • Whole life insurance is - like the name suggests - a life cover policy that is in place until you die
  • Joint life insurance is life cover for yourself and your partner in one policy
  • Over 50s life cover are usually whole life policies for people within a specific age bracket beyond 50
  • Critical illness cover is sometimes an option to put aside a portion of your payout that you could use if you suffer a pre-determined critical illness
  • Terminal illness cover can pay out early if you are diagnosed from a terminal illness, from which you will die within a projected, limited amount of time
  • Children’s cover is designed to designed to help cover extra cost like medical expenses if your child suffers accidental death or specified serious injury or illness, which could be added, at extra cost to your life insurance policy

Term life insurance

Term life insurance covers you for an agreed period of time, for example 30 years. This is the ‘term’ of the policy. This type of insurance is often taken out to cover a loan, like a mortgage, or to cover an ongoing financial obligation, like raising children, or can even be used to cover the costs of a funeral. So if you have 20 years left to pay on your mortgage, you can take out a term life policy that will cover you for this period of time. There are three different kinds of term life insurance policy, and it’s important to understand the distinction between them…

Decreasing term life cover

Decreasing term means that the amount your insurer pays out will decrease over time. This is used when a debt, loan repayment or mortgage will also reduce over time. In the example of a mortgage, your policy is designed to broadly stay in line with the remaining balance you owe to your mortgage provider for the same length of time as the mortgage. This type of policy usually offers an interest cap, so if your mortgage has an 8% interest rate but your insurer has a 7% interest rate cap, the payout might not completely cover the outstanding debt. It’s therefore important to know as much detail as possible about your mortgage when getting your quote.

Level term life cover

Level term is like the name suggests – your dependents will get the same amount, no matter when they need to claim. However, this doesn’t adjust for inflation, so if you have a long term policy the same amount of cover may seem worth less over time because of the increasing cost of living.

Increasing term life cover

Increasing term means that your insurer will pay out more over time, and it’s usually for people whose families may need more help as the years go by – for instance, if you have young children. This type of cover is designed to adjust to mitigate the effects of inflation and will have reviewable premiums which means you allow the insurer the option to increase not only the payout, but also the premium. The increase can either be index-linked (in-line with inflation) or a fixed rate, the benefit of the latter is that if kept long enough it may rise faster than the rate of inflation.

The right life insurance for you will depend on what you need cover for, how much you need and over what period. We've compared our cover types in more detail so you can see which best suits you.

What type of life insurance do you need?

The right insurance for you depends on both your circumstances and what you would like your payout to cover.

The length (or 'life') of the policy might be a consideration. If you expect that your mortgage has, for example, 20 years to run, you might want a decreasing term policy that runs for this length of time.

Or you might be entering old age and want to set something aside for your children or grandchildren. In this case, you might be more tempted by an Over 50s policy rather than one with a lifespan of pre-determined length.

Your personal financial circumstances could also play a prominent role in choosing life insurance. Your employer might offer death in service, which can supplement the value of a life insurance policy. Or you might know that you are only able to responsibly commit a certain amount each month to a life policy, which can affect the size of a payout.

And you might simply know that you want a policy payout of a certain size. In this scenario, you can look at which types of policy are going to offer this and what conditions might be placed on such a policy. Remember that payouts can be subject to inheritance tax.

Whole of life insurance

This type of insurance covers you for the whole of your life, rather than a fixed period of time. You pay into a policy, and the insurer agrees to pay your loved ones in the event of your death, no matter when that might be. It’s a good kind of policy to have if you want worry-free cover, without the hassle of taking out a new policy each time a policy term expires.

Whole of life insurance (sometimes called ‘life assurance') is usually significantly more expensive than term life cover for the same size of payout, and normally has functions besides insurance. For instance, you may be able to borrow against the value of your whole of life insurance, which is one reason for the inflated cost.

Certain whole of life policies are designed to be cheaper than term life as they cover shorter periods for smaller payouts and don't come with extra options such as borrowing against the value of the policy. An example of this type of policy is the Post Office Over 50s Life Cover, which guarantees acceptance for UK residents aged between 50 and 80.Over 50s life insurance

Joint life insurance

If you have a partner and want to make sure that your other half, and children, will be looked after if one of you should die, then a joint life insurance policy could be right for you. It insures two people at the same time, and pays out if one of you passes away. It can make life easier knowing that you are both covered, but remember that in most joint life policies, once you make a claim, the partner who is left won’t be covered any more – they’ll need to take out their own individual policy after that.

Post Office offer joint life policies that protect two people under one policy with one monthly premium payment, but only pays out once if a policy holder dies within the term. Two single policies protect each policyholder separately but will mean paying two premiums each month. Which option is right for you?

Over 50s life insurance

Over 50s life insurance policies are designed to meet the needs of people aged between 50 and 80. People at this age have different needs and lifestyles, and may want the flexibility of adjusting a policy so that it’s more affordable, but still guarantees something to help their families if they die. If you are looking for impartial advice about this, then charity Age UK may be able to help.over 50s life calculator

Critical illness cover and children's cover

Critical illness cover and children's cover pays if you or a insured child fall seriously ill, usually with a single lump sum payment. It’s important to make sure that you know what critical illnesses are covered by your policy, and what length of time your policy covers. It’s a useful way to help towards your expenses if you or your insured child is too ill or you’d struggle to meet bills like medical expenses or modifications to your home if required.

The payout for critical illness cover and children’s cover will either be a percentage of the overall payout or a define lumpsum. This will differ by insurer, and normally any critical illness cover or children’s cover cannot be added to an existing policy but must be bought at the point the policy is taken out.

Critical illness cover will pay your family a lump sum if you’ve been diagnosed with an illness from which you will die in the next twelve months. This may be a devastating time for you and your family, and having terminal illness cover can help you all by easing your financial worries during this time.Critical illness cover

Terminal illness cover

Terminal illness cover will pay your family a lump sum if you’ve been diagnosed with an illness from which you will die in the next twelve months. This may be a devastating time for you and your family, and having terminal illness cover can help you all by easing your financial worries during this time.terminal illness cover

Hopefully you now know what kind of life policy you need, so consider a Post Office Life Insurance policy today.

More ways to get covered

Life Insurance

Post Office Term Life Insurance comes with Terminal Illness Benefit as standard. We have three types of cover to suit your lifestyle.

Life Insurance

Over 50s Life Insurance

Post Office Over 50s Life Insurance offers you whole-of-life cover so you can leave your loved ones the gift of peace of mind whether you want to help relieve them of the costs of your funeral or leave them a financial security blanket.

Over 50s Life Insurance

Optional extras with your Post Office Life Insurance

Post Office Children's Cover

Get extra cover for your little ones and financial peace of mind that your children are covered, by adding the optional children's cover to your Post Office Life Insurance.

Find out more

Post Office Critical Illness Cover

Get extra protection and financial peace of mind by adding the optional critical illness cover to your Post Office Life Insurance.

Find out more

Still have questions?

You can find more information on life insurance by visiting Post Office life insurance guides and articles.