Different types of life insurance in the UK explained

Life insurance provides financial protection for your loved ones after you pass away. It's a significant safety net that many UK families rely on, with an impressive £20.1 million¹ claims paid out daily across the UK in 2023.

There are a few different types and it’s good to know the differences between them so you can find one that suits your needs. In this guide we look at each type of life insurance policy and how they can support you and your family at different stages of your life.

Understanding life insurance – the basics

Life insurance gives your loved ones - your beneficiaries, a cash payout when you pass away or if you’re diagnosed with a terminal illness. They can use the money for anything, like paying off a mortgage and funeral costs. 

The two main types of life insurance are term life insurance and whole of life insurance. And you can take out life insurance as a single person or a couple.

Although people tend to take out life insurance as financial security for their family, you don’t need a family to have life insurance. If you have a mortgage or other debts, such as car payments, you should consider life insurance.

The cost of your life insurance will depend on:

• your age
• your chosen payout
• how long you want the policy in place
• whether or not you’ve ever smoked
• your health and lifestyle
• where you live

At Vitality, you can get life insurance from as little as £5 per month, so it can be more affordable than you may think. Plus, you’ll get expert tips and tools to help you live a healthier life. And from day one, you can enjoy discounts and start earning rewards from top brands.

Term life insurance

Term life insurance covers you for a chosen number of years, which is called the ‘term’ of the policy. If you die within your chosen term, say 25 years, then your beneficiaries will receive a cash lump sum. If you die after the 25 years have expired, then they won’t receive anything.

Term life insurance is often used as a means to pay off a mortgage if you die while the mortgage is in place.

There’s no cash-in value with term life insurance. So, if you decide to cancel your policy, you won’t receive anything back.

Read more: Term life insurance explained

Types of term life insurance

There are three different types of term life insurance.

Decreasing term insurance. The amount of cover decreases as you go through the term of the policy. This can make it cheaper to buy than level and increasing term insurance. It’s often used to cover the cost of paying off a mortgage. The insurance payout reduces over time. So, if you die five years into a 25 year plan, your loved ones will receive a larger payout than if you die 20 years into a 25 year plan. But as your debt should have reduced as well, your family will have less to pay back.

Read more: Decreasing term life insurance explained
 
Level term insurance. This insurance pays out a fixed amount for the duration of the policy. So, whether you die five or 20 years into a 25 year plan, your loved ones will receive the same amount. This type of insurance is useful for paying off an interest only mortgage. Or providing for your family during the years they’re financially dependent on you.

Increasing term insurance. This is where the cover amount rises each year at a fixed rate or in line with inflation. This helps your cover keep track of the cost of living. Increasing term insurance is more expensive than level and decreasing term insurance. This is because the cover increases each year. But the advantage is the payout will often stretch further than the other types of term insurance.

Here’s how the types of term life insurance compare:

Who should consider term life insurance?

• Mortgage holders
•  Renters with a long tenancy
• People with debt and few savings
• Parents with young children
• Families with children at private school or university
• People who want to leave a legacy

Vitality term life insurance

Vitality term life insurance covers you for any period from 5 to 70 years. It pays out if you die or are diagnosed with a terminal illness. The money you or your family receive can be used for anything, from paying off debts to having a once in a lifetime holiday. In 2023 we paid out 99.7% of all life cover claims.*

But Vitality term life insurance not only protects you and your loved ones. Through the Vitality Programme we give you the tools to get active and build life-long healthy habits. And reward you when you do.

Whole of life insurance

Whole of life insurance is a type of life insurance that’s guaranteed to pay out whenever you die, as long as you keep paying your premiums. So, it offers cover for the whole of your life.

Unlike term insurance it doesn’t have an end date. So, once the plan is set up and your premiums are up to date, it will pay out to your beneficiaries when you die.

This type of insurance is often used to help pay an inheritance tax bill, so the cost doesn’t need to come out of your estate. Or some people use it to cover funeral costs or leave a legacy for their family.

Read more: Whole of life insurance explained

Who should consider whole of life insurance?

• Those with a potential inheritance tax liability
• People who want to leave a guaranteed legacy
• Individuals who want to leave money for their funeral
• People looking to combine protection and investment
• Business owners who want to protect the financial stability of their business

Vitality whole of life insurance

Vitality whole of life insurance provides lifelong cover that guarantees a payout for your loved ones. Your beneficiaries can use the money for anything. But these insurance plans are often taken out to pay an inheritance tax bill or pay for funeral costs.

With Vitality, you can also add our unique LifestyleCare cover to your plan. This pays for any expenses if you’re diagnosed with a later-life illness, like dementia.

Over 50s life insurance

Over 50s life insurance is usually only available to people aged 50-80. People often get this type of insurance to help with funeral costs or to leave a small legacy for their family.

You pay a fixed premium each month and the policy guarantees to payout when you die.If you stop making payments, your insurance may end, and your family won’t receive any payout. However, some providers cap payments at a certain age or after a set number of years but allow your cover to continue until you die. It’s possible to pay in more to your policy than you receive as a payout if you live for a long time.

Some insurance companies will only pay out on an over 50s plan if the policy has been in place for at least a year. However, others say that if you die within the first year of the plan, you’ll get back the premiums you’ve paid – but you won’t receive the full insurance amount.

Read more: Over 50s life insurance explained

Joint life insurance

Joint life insurance covers two people on the same policy but only pays out once. If you or your partner die whilst the policy is in place, the other will automatically get the payout. The policy then ends, so the surviving partner is no longer covered by the insurance. It’s sometimes known as first-death or first-to-die life insurance.

A joint life policy is often taken out by couples who share a mortgage. If one partner dies, the other can pay off the debt with the payout. It’s usually cheaper than taking out two single policies.

Read more: Joint vs single life insurance explained

Who should consider joint life insurance?

• Married couples or long-term partners
• Couples with shared financial commitments such as a mortgage
• Friends or partners who share the cost of rented accommodation
• Partners with insurance needs but limited budget

Other types of life insurance policies

Serious Illness Cover

Serious illness cover and critical illness cover provides a tax-free lump sum of money if you get diagnosed with one of the illnesses that it covers. It can help to ease the financial burden if you need to take time off work. This cover can be combined with your life insurance policy, so you’re insured whether you become seriously ill or die.

Serious illness insurance offers cover against a wide range of conditions. These include cancer, heart attack, stroke and neurological diseases. It also allows you to claim for conditions before they become critical. For example, you can claim for some early stage cancers and receive a partial payout of your total cover. If the cancer returns you can claim the rest of your insurance as long as you meet the criteria.

Read more: Serious and critical illness cover explained
 

Income Protection Insurance

Income protection insurance provides a replacement tax-free monthly income if you can’t work because of illness or injury. It can be taken out in addition to life cover in case your income is reduced due to the illness or injury.

Most income protection policies cover conditions like back pain, broken bones, mental health issues like anxiety and depression, as well as serious illnesses like cancer, heart disease, and stroke—provided these conditions results in you having to take time off work. Any claim requires the illness or injury to cause incapacity that meets specific criteria and definitions set out by the insurance company.

Some insurers, like Vitality, also support you to get back to work with built-in Recovery Benefit. We offer four dedicated support services to help recover from the conditions related to your claim.

Read more: What is income protection insurance?

Relevant life insurance

This type of insurance is a tax-efficient way for a business to pay an employee’s family a lump sum if they pass away while employed.

Unlike personal life insurance premiums, the cost of a Relevant Life Plan is tax-deductible. And the lump sum payouts are not subject to income or inheritance tax.

With Vitality’s Relevant Life Plan, your employees also get access to a range of discounts and benefits that can help them look after their health.

Life insurance with added benefits

Life insurance often comes with a few additional benefits, such as:

• Terminal illness cover. An early payout if you have less than 12 months to live.
• Accidental death benefit. Cover if you die due to an accident whilst your application is being processed.
• Make changes to your policy for free. For example, you can change the amount of cover as your needs change over the years.
• Support services. Such as bereavement services to support your loved ones.
• Discounts and rewards. Vitality gives you the tools to get active and build life-long healthy habits. And reward you when you do.

How to choose the right type of life insurance

Assessing your needs

When taking out life insurance, think carefully about what you need from the plan. Taking out whole of life cover for inheritance tax purposes is very different from taking out insurance for a repayment mortgage. It may be that you need more than one type of plan to cover all your financial obligations.

Consider not only your mortgage, but all other debts as well. If your family were to lose your income, will the life insurance be able to cover all your costs?

Think about how long your dependents will need financial support. If you have a young family, you’ll need cover in place for a long time. Indexation is a way to make sure the cover keeps up with inflation.

Make sure you can afford the premiums for as long as the plan is in place. If you can’t afford full cover now, you can increase your cover as your budget allows.

Life stage considerations

Young adults with debt. You may feel invincible. But accidents do happen. And unfortunately, your debts don’t die with you. So, if you’re renting or have debts, it’s worth considering life insurance. Read more: Life insurance for young adults

New couples. When you’re committed to being with another person it’s natural to make sure they’re financially cared for if you die. This can be at any stage of life – not just when you’re young. And you don't have to be married or in a civil partnership to leave a life insurance payout to a loved one. Read more: Life insurance for couples

Buying a property. As part of your mortgage agreement, you may have to take out mortgage protection insurance. This can help towards the cost of paying off your portion of the mortgage if you die. Read more: Mortgage protection insurance explained

Parents with children. It’s important for parents to consider the cost of raising children if they’re no longer able to provide for them. Having family life insurance in place until your children start earning can be very reassuring. Read more: Life insurance for families

Those with caring responsibilities. You may have caring responsibilities, for example, for a parent or sibling. If something happened to you, the life insurance payout could help them with their living costs. Read more: Life insurance for parents

Pre-retirement. You may want to leave a legacy, contribute to your funeral costs or make a donation to charity when you die. A life insurance policy can help you do these things. Read more: Life insurance and funeral planning

Inheritance tax planning. If you think you’ll need to pay inheritance tax on your estate when you die, you can take out a whole of life insurance policy in trust to cover the tax bill. The policy sits outside of your estate, so is not subject to probate and can be paid quickly. Read more:

Life insurance and inheritance tax

Key takeaways

• Life insurance gives your loved ones - your beneficiaries, a cash payout when you pass away or if you’re diagnosed with a terminal illness.
• The two main types of life insurance are term life insurance and whole of life insurance.
• You can take out life insurance as a single person or a couple. And you don't need to be married or in a civil partnership to take out joint cover.
• Term life insurance covers you for a chosen number of years, which is called the ‘term’ of the policy.
• Whole of life insurance is a type of life insurance that’s guaranteed to pay out whenever you die.
• At Vitality, you can get life insurance from as little as £5 per month. Speak to our customer services team or your financial adviser for details.
  
  

Vitality life insurance

Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:

• A brand you can trust - In 2024, we paid 98.9% of all Life Cover claims.*
• Get lower premiums when you add Optimiser to your plan. Keep your premiums low when you stay active.
• Access to Vitality partner discounts and rewards.
• Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
• You're not alone in choosing Vitality. Over 2 million lives in the UK are now covered by our insurance, and we’re here to support you too.

Ready to take the next step? Getting a quote is simple and takes just a few minutes.

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*VitalityLife Claims and Shared Value Report 2025

¹Source: The ABI, Protection insurers pay out record £7.34 billion to support individuals and families, September 2024