Term Life Insurance: Our Pick Of The Best

With the help of our life insurance partner Lifesearch we pulled together the top five providers when shopping for £200,000 worth of level term cover (where the pay-out remains fixed whenever throughout the term) over 25 years. The quotes listed relate to a healthy, single applicant, aged 30 but you can find full details in our methodology, below.

We obtained life insurance quotes through Lifesearch, our life insurance partner, for a single 30-year old (insurers are not permitted to price based on gender).

We assumed that the individual was a healthy non-smoker, with no pre-existing medical conditions, and working in a low-risk job. On this basis we looked for £200,000 worth of level-term life cover spanning 25 years.

We then looked at the percentage of life insurance claims each provider paid out, as well its customer service score (as rated by Fairer Finance, April 2024).

With all premiums coming in at under £10 a month and a price differential, in some cases, of pennies, we weighted the results on:

• Percentage of claims paid
• Customer service score
• Any other benefits that come free with the policy

All policies listed offer a funeral pledge of at least £5,000 which bridges any gap in costs between the funeral and getting the full payout. All come with the option to be written in trust.

We listed only policies that cover terminal illness as standard. This means the policy will pay out on terminal illness or death (whichever happens first).

Critical illness cover will need to be added separately to the policy, and could increase the monthly premium you are quoted.

In line with industry standard, none of the life insurers provide cover for suicide for the first 12 months.

Term life insurance pays out a lump sum if the policyholder dies during the term of the plan. Typically life insurance policies run for around 20 or 25 years. But policyholders can choose the timeframe over which the protection should be in place.

With level term life insurance the sum insured stays the same – so the payout will be the same – regardless of when a payout is made, if the policyholder dies during the term. In contrast, with decreasing term life insurance the sum insured reduces over time until the end of the term. You can learn more about the different types of term life cover below.

If the policyholder lives to the end of the term there is no payout or maturity value on the plan.

The monthly premium policyholders pay is based on a number of factors including their age, whether or not they are a smoker or vaper, their general state of health (including pre-existing conditions) and the sum insured.

Life insurance that lasts until you die, whenever that might be, is called whole of life cover. This is more expensive still since a claim will inevitably be made at some point.

Term insurance is designed to provide financial protection in the event of premature death. Whole of life insurance is generally used for estate planning purposes.

Term life insurance falls into three different types: decreasing term, level term and increasing term. Here’s an outline of each.

Decreasing term: With a decreasing term policy – the most common type of ‘term’ cover – the amount that will be paid out in the event of death becomes lower over time, so it’s most suitable if your own financial commitments will also reduce over time

The most notable example of this is a repayment mortgage – the life insurance pay out decreases in line with the projected fall in your mortgage balance as you chip it away.

Decreasing term insurance is cheaper than level term insurance, and often the most cost-effective option. That said, if you have children who depend on you financially, level term cover may be a better option. This type of life insurance is also known as mortgage life insurance.

Level term: A level term policy pays out a fixed amount if the policyholder passes away within a pre-selected period of time – known as the policy ‘term’. No matter how many years into the policy you pass away, your beneficiaries will receive the same payout – known as the ‘sum assured’.

This makes level term cover well-suited to an interest-only mortgage, where only the interest is paid off but the capital debt does not decrease. While premiums remain the same during the term, they tend to be more expensive to those attached to decreasing term cover. If you survive the ‘term,’ your cover will end, and you will need to purchase a new life insurance policy.

Increasing term: With an increasing term policy, the amount insured goes up every year. How this annual increase is calculated depends on the insurer and policy. It may be linked to an inflation index, an insurer-set multiplier or, rarely, simply rise by a fixed amount. Because the amount of cover becomes greater over time, premiums tend to be more costly than other types of life insurance.

The older you are when you buy life insurance, the more likely you are to have health issues and the more expensive your cover will be. This means that if your cover comes to an end and you want to take out a new policy, you could end up paying a lot more.

Some insurers therefore offer renewable term policies which allow you to renew or extend your cover without an updated health check. So you could, for example, take out a 15-year term policy and at the end of that period, renew your cover at the same level.

To decide which type of term life insurance is best for you, you’ll need to think about your circumstances. If your main focus is making sure your family could pay off the mortgage if you were no longer around, decreasing term insurance might be enough.

On the other hand, if you’d prefer your family received a fixed lump sum if they had to claim, level term insurance might be more suitable, while if you’re concerned about the effects of inflation on your policy, you might prefer increasing term cover.

Life insurance is an important consideration if you have children or other people who rely on you financially. It offers peace of mind that, if the worst happened, your dependants would be financially provided for and would be able to keep up with everyday bills and other expenses.

Even if you’re a stay-at-home parent, you should still think about life insurance. A pay-out could help ensure those left behind would be able to afford to make childcare arrangements, for example.

Because term life insurance provides cover for a set period, it can be suitable for those who want to cover a large loan such as a mortgage or provide protection until their children have grown up and moved out of home.

According to research by insurer Direct Line (see table below) of those who have life insurance in place these are the main reasons they bought the cover:

• To pay for funeral costs: 33%
• To ensure loved ones are financially secure: 32%
• To help pay off the mortgage and other debts: 28%

Certain key life events trigger the need for life insurance, such as buying a house, getting married or having a baby. You should then think about increasing your level of cover when things change – for example, you have more children, or take on a bigger mortgage if you’ve upsized your home.

Generally, the greater the level of cover, the higher the premium. But you’ll need to weigh this up against the peace of mind that offers – and, of course, what it might one day provide.

As a minimum, you should opt for enough term cover to pay your debts – including what’s outstanding on the mortgage, credit cards, and loans – pay the bills, keep your car, and maintain your current standard of living.

However, some experts say that around 10 times your gross annual salary should be a starting point, rising to 15 or even 20 times if you have large commitments.

The length of term you choose will also depend on what you need the cover for. If your main concern is making sure the mortgage can be paid off, it might be best to choose a term which is at least as long as the time you have left on your mortgage. So if your mortgage lasts 25 years, you might choose a 25-year term life insurance policy.

Alternatively, you might only want cover until any children you have are old enough to be financially independent, or you might prefer to have cover that lasts until you retire. Keep in mind that once your life insurance policy term ends, you’ll no longer have cover, and your loved ones won’t receive a pay-out if and when you die.

The premium you are quoted however, will depend on a range of factors, including your age, health and lifestyle (such as if you exercise and whether you smoke or vape).

It will also hinge on the amount of cover you want (known as the ‘sum assured’), and the length of the term you want the cover for.

You can expect to pay lower premiums if you take out life insurance when you are young and healthy, while premiums will gradually increase as you get older.

Premiums tend to be higher also if you suffer from a health condition that could mean you are more likely to die sooner than the projected average age.

Term cover is the cheapest kind of life insurance as – unlike whole of life which pays out indefinitely whenever you die – the chances are, term cover won’t pay out.

What’s more, competition among life insurance companies means premiums are relatively cheap – literally starting from as little as £5 to £10 a month (for £200,000 worth of cover taken over 25 years by a single applicant in good health).

The exact premium will depend on your individual circumstances.

Term insurance is the most common kind of life cover as it protects a duration of time in which your loved ones would be most financially vulnerable if you were to die. However, there are other kinds of life insurance – as we set out below.

Whole life insurance: Whole life cover, sometimes called whole of life assurance, guarantees to pay out a lump sum on the policyholder’s death – so the cover applies for the remainder of your life, not just a set term as with term insurance.

As there is always a guaranteed pay-out, whole of life premiums tend to be expensive. They can also rise over time.

Whole life cover is often linked to an investment to enable the lump sum to grow over time. Policies can also be written in trust, so that the proceeds are paid directly to your beneficiaries rather than going into your estate – and potentially being liable for inheritance tax.

Death in service benefit: Many employers offer life insurance to their staff as an employee benefit. This is often referred to as  ‘death in service’ protection. There is usually no requirement for a health check or any other form of insurance underwriting, although you may be asked to sign a declaration that you are not suffering from a serious medical condition

The potential pay-out from this sort of arrangement is often set at four times annual gross salary, although details may differ between employers. Also, some employers may choose to offer more generous pay-outs to more senior staff.

Over-50s life cover: Over-50s life insurance is a lower cost type of policy that you can take out between the ages of 50 and 80, typically with a much smaller sum insured.

It is not necessary to declare any pre-existing conditions or show medical records as everyone is automatically accepted. Pay-outs tend to be relatively small, with policies typically taken out to cover funeral costs, for example.

Premiums are fixed and tend to be low and there is a guaranteed, pre-determined pay-out to beneficiaries when you die. However, if you live for a long time you could end up paying more into the plan than your family will get back due.

Critical illness cover: Many term life insurance policies allow you to add on critical illness cover for an additional cost. It pays out a tax-free lump sum if you are diagnosed with a specific illness or medical condition listed on your policy – such as cancer, heart attack, stroke or loss of limb – during the term.

Its purpose is to offer a financial buffer at a highly stressful time of life, and support if you have to stop working. The funds paid out can be used to ensure your mortgage and other major financial commitments are paid. The money can also be used to make any required adjustments to your home that make life more comfortable.

Critical illness cover is considerably more expensive than life insurance. So, while you should look to take out enough cover for your mortgage, debts and monthly bills, in reality, it may be a case of seeing how much you can afford.

Also be sure to read the small print carefully, as insurance companies have a finite list of conditions they will cover. This can run to more than 100, but if your illness isn’t included, you won’t get a pay out.

You may also be declined if you have withheld information about your medical history or if the illness you contract isn’t advanced enough.

When a couple buy term insurance to protect each other and their children, they can buy a joint life policy which covers them both or they can buy two single life policies (usually arranged through the same insurance company with a single combined premium).

A joint life policy is cheaper but that is because it only pays out once, on the first death. That also means the surviving partner no longer has any life cover and would face higher premiums (on account of their higher age) if they bought a new policy at that point.

With individual life policies, the premiums are higher but the protection is more extensive. If one partner dies during the term, the pay-out should be forthcoming, and the surviving partner still has insurance in place to protect his or her dependants.