How Does Term Life Insurance Work?
Term life insurance is simple: you choose a cover amount and a term length. You pay a fixed monthly premium. If you die during the term, your beneficiaries receive the payout. If you survive the term, the policy ends and nothing is paid out.
This is the most popular type of life insurance because it provides the most cover for the lowest cost. Unlike whole of life insurance, there is no savings or investment element – it is pure protection.
Types of Term Life Insurance
| Type | How It Works | Best For | Cost |
|---|---|---|---|
| Level term | Payout stays the same throughout | Income replacement, flexible needs | Mid-range |
| Decreasing term | Payout reduces over time | Repayment mortgages | Cheapest |
| Family income benefit | Pays monthly income instead of lump sum | Families with children | Often cheapest per £ of cover |
How Long Should the Term Be?
Choose a term that covers your financial responsibilities:
- Mortgage: Match the remaining mortgage term (e.g., 25 years)
- Children: Until your youngest child is financially independent (typically age 18–21)
- Retirement: Until you plan to retire and have pension/savings income
Many people choose the longest of these. For example, if your mortgage has 22 years left but your youngest child is 3, a 20–25 year term would cover both.
How Much Does Term Life Insurance Cost?
Term life insurance is very affordable. As a guide:
| Age | £200,000 Level Term (25 years) |
|---|---|
| 25 non-smoker | From £6–8/month |
| 30 non-smoker | From £7–10/month |
| 35 non-smoker | From £9–14/month |
| 40 non-smoker | From £14–22/month |
| 45 non-smoker | From £22–35/month |
| 50 non-smoker | From £38–55/month |
Smokers typically pay 50–100% more. Health conditions may also increase premiums.
What Happens When the Term Ends?
When your term ends, the policy simply expires. You can choose to take out a new policy, though premiums will be higher as you are now older. Some policies include a renewal option that lets you extend cover without new medical questions (though at a higher premium).
Frequently Asked Questions
Cover for a fixed period. Pays out if you die during the term. Cheapest form of life insurance.
Cover your longest commitment: usually your mortgage term or until your youngest child is independent.
It expires with no payout. You can take out a new policy at higher rates, or use a renewal option.