Term life vs whole-of-life insurance — which type of UK life cover do you need?
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In short. Term life insurance pays out only if you die within a set period (e.g. 25 years). Whole-of-life insurance lasts as long as you keep paying premiums and is guaranteed to pay out eventually — premiums are correspondingly higher.
Term cover is the standard choice for protecting a mortgage or young family. Whole-of-life is often used for estate planning — particularly to leave money to cover inheritance tax — because a payout is virtually certain.
Last reviewed:
Side by side
Length of cover
Term life insurance
Fixed term (e.g. 10, 20, 30 years, or to a target age)
Whole-of-life insurance
Until you die (as long as premiums are paid)
Payout certainty
Term life insurance
Only if death within the term
Whole-of-life insurance
Eventual payout virtually guaranteed
Cost
Term life insurance
Cheapest form of cover
Whole-of-life insurance
Significantly more expensive
Sum assured options
Term life insurance
Level, decreasing or increasing
Whole-of-life insurance
Level (some indexed)
Cash value
Term life insurance
None
Whole-of-life insurance
Investment-linked whole-of-life can build a cash value; protection-only does not
Common use
Term life insurance
Mortgage cover, family income protection
Whole-of-life insurance
Inheritance tax planning, funeral provision (writ in trust)
Inheritance tax (IHT)
Term life insurance
Pays out tax-free; can be written in trust to keep outside the estate
Whole-of-life insurance
Same — usually written in trust so payout doesn't increase the estate
When Term life insurance usually wins
- You're covering a mortgage or dependants while children grow up
- You want maximum cover for the lowest premium
- Your protection need has a natural end date
- You want simple, predictable cover
When Whole-of-life insurance usually wins
- You're planning for inheritance tax with a known liability
- You want to leave a guaranteed lump sum regardless of when you die
- You can afford and want to commit to long-term premiums
- You want a guaranteed funeral / final-expenses payout
Related quick answers
FAQ
- What is decreasing term insurance?
- Cover where the sum assured falls over time, usually designed to match a repayment mortgage balance. Cheaper than level term for the same starting cover.
- Why write a life policy 'in trust'?
- Writing the policy in trust means the payout isn't part of your estate, so it bypasses probate (paid faster) and isn't usually counted for inheritance tax purposes. Most insurers offer a free trust template.
- Do I need life insurance if I have no dependants?
- Often not — the main purpose of life insurance is to replace income or pay off debts that would otherwise fall to dependants. Information only, not advice.