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Types of life insurance
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There are a range of terms and types of life insurance policies, which can be confusing. Here’s a breakdown of the different types of life insurance available.
- Level-term life insurance – with this type of policy, both the premium you pay and the benefit amount stay the same for the full policy term.
- Decreasing term life insurance – here the amount paid out will decrease over time. This could be useful if you just want the benefit to cover a financial commitment, such as a repayment mortgage, which gradually decreases. Because of this, decreasing life insurance tends to be cheaper than level.
- Mortgage cover – you could select either level or decreasing life insurance, helping to cover the cost of future repayments in the event of your death.
- Whole of life insurance – covers you for your whole life and will pay out a lump sum upon your death, whenever that may be. That’s compared with other types of life cover which last for a set period only. Where available, whole of life insurance tends to be more expensive than term life insurance.
- Over 50s life insurance – can be taken out by anyone over the age of 50. Some insurance providers do have an age limit though. At Lloyds Bank, you need to be aged 18 to 59 to get a new policy, which can give cover up to the age of 69.
Remember that life insurance products have no cash-in value at any time. If the policy amount has not been paid out by the end of the selected term, the policy will end, and you’ll get nothing back. Similarly, if you don’t pay your premiums on time your cover will stop, your policy will end, and you’ll get nothing back.
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There are 3 primary styles of life insurance you may like to consider:
Level-term life insurance
With level-term life insurance, the benefit amount that will be paid out in the event of your death will stay the same for the full policy term. So, you’ll know exactly how much your loved ones will receive in the event of a claim. The amount that can be paid out stays the same for the full length of the term. This may be a helpful option for someone who wants to know how much their loved ones will get upon their death.
Decreasing term life insurance
With decreasing life insurance, the potential payout slowly decreases over time. This is commonly used to cover a financial commitment, such as a mortgage, which reduces with each repayment. Housing costs are often the largest single household expense, so knowing it will be taken care of in the event of your death could be very reassuring for you and your family.
Increasing term life insurance
Increasing life insurance takes inflation into account, so the benefit amount can increase over the duration of the policy. If you have financial commitments, which could increase with a change in interest rates, this type of life insurance will adapt to make sure they’re covered. This could make sure your beneficiaries aren’t overloaded financially, or simply help to maintain their living standards in your absence.
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With whole of life insurance cover, provided you’ve kept up with your premium payments, a claim can be made on your policy in the event of your death, whenever that happens.
Contrast this with term life insurance, which will only pay out if you die within a set period, defined at the start of your policy. For example, you might just want cover in place while your children are still dependent on you, or while you still have a mortgage.
You may decide to take out whole of life insurance when you get married or have children, providing financial security for your family when you pass away – whenever that may be.
Because it offers long-term protection, a whole of life insurance policy can be one of the most expensive forms of cover. As with all forms of life insurance though, the younger you are when you take out the policy, the cheaper your premiums could be.
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As the name suggests, this form of life insurance is tailored to people aged 50 and over, when you may have very different needs or concerns. For example, in later life you may want to make sure your partner’s lifestyle is maintained in your absence, your family is financially secure, or you simply want to leave money for your funeral.
Because you’re more likely to have heath issues in later life, an over 50s life insurance policy may be more expensive than equivalent cover for a younger person. However, the reassurance life cover can offer is the same at any age.
To take out an over 50s life insurance policy, there’s usually a higher age limit. It’s usually suitable for people aged between 50-80. It’s designed to cover the cost of a funeral, where you choose the amount that could be paid out. This doesn’t necessarily mean your policy expires when you turn 81, but your premium costs may stop. As with any financial commitment, it’s important to check and understand the terms of any policy you’re considering carefully.
We don’t currently offer a specific policy for people aged over 50, but may be able to offer standard life insurance for people under the age of 60.
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A single life insurance policy will just cover one person, providing a payout to successful claimants in the event of the policyholder’s death.
In contrast, joint life insurance may be suitable for couples, or even business partners. It will pay out just once in the event of a claim, either upon the death of one or both policy holders.
Whether the claimant is your partner or another beneficiary, a payout could help to relieve any financial pressures in your absence. That could be used to cover household living costs, childcare and education expenses, or ongoing business overheads.
Learn more about joint life insurance.
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There are other types of cover you may like to consider, either with life insurance, or as standalone policies:
Critical illness cover
If you were diagnosed with a critical illness, or needed life-changing surgery covered by your policy, critical illness cover could give a financial benefit to you and your family.
Unlike life insurance, which would give a payout to claimants in the event of your death, with critical illness cover, you would make the claim and receive the payout. You could invest that money in treatment, making your home more accessible and comfortable, or just to relieve financial pressures while you focus on your health.
Remember that not all illnesses will be covered, so be sure to check what your policy includes. Illness severity can also affect the payout, so check exactly what is included by reviewing the policy terms and conditions.
What’s the difference between income protection and critical illness cover?
Terminal illness cover
It’s not a situation that anyone would want to be in, but if you were diagnosed with a terminal illness, a payout could at least relieve any financial concerns.
Again, it’s not the same as other kinds of life insurance where claimants would receive a payout in the event of your death. With terminal illness cover, you can make the claim and receive the payout, helping you to navigate treatment, or simply put your affairs in order for your loved ones.
Terminal illness cover is usually paid out if it has been confirmed the policy holder will die within a certain time, such as 12 months. If a terminal illness claim is accepted and paid out, and you survive to the end of the term, you won’t have to pay back the money you received.
While we don't offer this policy directly, it could be something to consider if you’re worried about developing a terminal illness. Especially if you have dependent family members, or a hefty mortgage.
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The type of insurance you select may depend on your circumstances and needs. Particularly if you have several financial commitments, or a growing family to protect, life insurance could afford peace of mind to you and your loved ones.
It’s worth considering:
- Your age – the younger and healthier you are, the cheaper your cover could be.
- What you would want the money to be used for. For example, is paying your mortgage the main concern.
- How much can you afford to pay for the cover you want.
- How much you want your beneficiaries to receive.
- Whether you want life insurance on its own, or alongside critical illness cover.
Scottish Widows – who are also part of Lloyds Banking Group – arrange our life insurance policies. They are our life insurance experts, helping to protect what matters most for over 200 years.
Let’s look at the details
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Term life insurance is one common type of life insurance. Many people just choose to buy protection for the riskiest portions of their life – for example, if they have dependent children, or a mortgage their partner would struggle to support alone.
Other types are available, so it’s important to consider your needs, both now and in the future, before making any big decisions.
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Decreasing life insurance can often cost less than level and increasing life insurance policies, because any payout is likely to be lower. Term life insurance can also be a more affordable option than a whole life policy, as the duration is for a specific term only. Whatever you choose, just make sure the policy meets your cover needs for the foreseeable future.
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Your reasons for choosing one type of life insurance over another can depend on several things. This could include how long you want the cover to last, what you intend the lump sum to be used for, and how much you want your loved ones to be able to claim. It’s important to fully explore your options to find what best suits you and the important people in your life.