Term life insurance: level, decreasing and increasing cover

Term life insurance is cover that runs for a fixed number of years, chosen by you when you take it out. If you die within that period, your family or financial dependents receive a cash lump sum from the insurer¹. If you live to the end of the term, the policy ends and nothing is paid: there is no cash-in value and no return of the premiums you have paid¹.

It is one of the two main forms of life insurance. The other, whole of life insurance, has no term at all and pays out whenever you die, which makes it more expensive than term cover, which only pays out if you die within a certain timeframe². Term insurance is generally paid as a lump sum³, and it is the form of cover most often used to protect a family or a mortgage during the years the money is actually needed.

What term life insurance is: a lump sum if you die during the term

Term life insurance, often called term assurance, is a kind of protection insurance paid to your family or financial dependents if you die during the term⁶. You choose the length of cover when you take the policy out, pay premiums until the end of the term, and the policy pays out only if you die within it⁷. Because the insurer's promise lasts for a defined period rather than for the whole of your life, the premiums are lower than for whole of life cover, which is guaranteed to pay out eventually².

The term is often matched to a specific need. Where the cover protects a mortgage, the length of cover is set to the same as the mortgage, say 25 years, and the sum insured should match the amount borrowed⁸. Where it protects a family, the term might instead run until children are grown or until the main earner expects to retire. Some insurers offer terms stretching from five years all the way up to 70 years¹.

The payout is normally a single lump sum, though some policies can instead pay smaller amounts over time, an arrangement known as family income benefit⁹. Many term policies also include terminal illness benefit at no added cost: if you are expected to live for less than 12 months, the insurer pays out the full amount of the cover straight away, and you keep the money even if you live longer¹⁰. This benefit is typically not available in the last 12 to 18 months of the policy.

Term life insurance is different from over 50s life insurance, which promises a lump sum when you die whenever that happens, provided premiums are not missed, and which requires premiums to be paid until you die⁷. Term cover instead runs for the period you chose and then stops.

Level, decreasing or increasing: how the payout behaves

The single most important choice with term life insurance is how the payout behaves over the years, because three versions of the same product exist and they suit different needs⁴:

With level term insurance, the payout your loved ones receive remains level throughout the term of the policy¹. With decreasing term cover, the payout gets less over time, which is usually arranged to match a debt that is being paid down¹³. With increasing term insurance, the size of the payout increases as the term of the policy continues¹.

The three types are the same product in every other respect: the same health questions, the same rule that the policy pays out only if you die within the term, and the same absence of any cash-in value. The choice between them is about matching the shape of the payout to the shape of the need it is protecting.

Level term cover: a fixed sum for the whole term

Level term means the amount paid out stays the same throughout the policy term, providing an agreed lump sum on death¹¹. The sum assured, the amount you are covered for, is set at the start and does not change for the entire term⁴. Both the cover amount and your premiums are fixed, which is what gives this type of policy its certainty¹².

Because the payout never falls, level term policies pay out the same amount whether you die in the first year of the term or the last¹⁴. That makes them a natural fit for an interest-only mortgage, where the amount owed stays the same until the end, and for family protection where the people relying on the payout need a known amount regardless of when the worst happens⁸.

The trade-off is cost. Because the insurer's liability never reduces, level term cover is more expensive than decreasing term cover for the same starting amount¹⁴. It also does nothing about inflation: a payout fixed at the outset will buy less in twenty years' time than it does today, which is the gap that increasing term cover is designed to fill.

Decreasing term cover and repayment mortgages

Decreasing term life insurance is most commonly known as mortgage cover or mortgage insurance⁹. The amount paid out decreases over the life of the policy, usually to match a decreasing debt such as a repayment mortgage¹¹. As you pay off your mortgage, the amount you are covered for goes down too¹⁰.

A worked example shows how the cover tracks the debt. A policy taken to cover a £250,000 repayment mortgage would be designed to fall in step with the balance: after the first year of repayments, £234,000 would still be owed, and the policy's potential payout would have reduced to match⁵. Each year the potential payout decreases, because it is meant to be used with a mortgage where the outstanding loan decreases over time⁶.

This matching is what makes decreasing term cover usually the cheapest option⁸: the insurer's largest liability exists only in the early years, so it charges less than for level cover with the same starting amount⁴.

The payout is not guaranteed to match any specific debt exactly, because the rate at which the cover decreases is set by the insurer, not by your mortgage statement. The dedicated guide to level term or decreasing term life insurance compares the two in more detail, and mortgage life insurance covers protecting a home loan specifically.

Increasing term cover and inflation

With increasing term insurance, the size of the payout increases as the term of your policy continues¹. The amount you are covered for goes up either by a fixed amount each year or in line with inflation¹⁰. You can set the cover to increase by a set amount each year or by the retail prices index (RPI) measure of inflation¹.

Increasing term cover usually starts at the same price as level term cover¹. But because you have the guarantee that your payout will increase over the term, your premiums will increase as your cover rises¹. Insurers usually achieve the effect by including indexation as an add-on to a level term policy⁴.

This type of cover tends to suit long terms, where the risk is that a fixed payout would lose much of its buying power before it is ever needed. The trade-off is that the premiums are not fixed: a household budgeting for a level monthly cost needs to allow for the premium to grow. The comparison page on level or increasing cover sets out the choice in full.

How much term life insurance costs

The premium a person pays depends on the amount of cover, the length of the term, and above all on health, age and smoking status, which is why insurers ask medical questions before quoting⁴. As a broad illustration from independent guidance, a 53-year-old non-smoker in reasonable health was quoted £7 a month for a £10,000 term policy running until age 90, as of December 2025⁷. A heavier smoker's example from May 2026 shows the other end of the scale: a 35-year-old smoker taking £300,000 of level term cover over 34 years faced a total cost of £13,043.76 across the term¹⁵.

Between the types, the ordering is consistent: decreasing term cover tends to be cheaper than level term cover because the payout is decreasing⁴, and level term cover in turn costs less than whole of life insurance, which is guaranteed to pay out whenever you die².

One cost that does not apply is insurance premium tax. Life insurance and most other long term insurance are exempt from it¹⁶, so the quoted premium is not carrying a tax charge of the kind that adds to general insurance premiums.

Optional add-ons raise the price. Critical illness cover can be added to a life insurance policy or bought separately, providing a lump sum on diagnosis of a specified serious illness¹⁷, and waiver of premium, which covers your premiums if illness or injury stops you working, is another paid extra¹⁸. The guide to how life insurance premiums are worked out explains the factors in detail.

Choosing the length and amount of cover

Two decisions set the shape of the policy: how much cover, and for how long. On length, you can set up a plan for any number of years, for example 15, 20 or 30 years, or arrange cover until a certain age such as 40, 50 or 60⁹. One provider offers terms from 5 to 50 years on both its level and decreasing cover¹², and some insurers offer cover stretching from five years all the way up to 70 years¹.

On amount, the starting point is what the money is for. Where the cover protects a mortgage, the sum insured should match the amount borrowed and the term should match the mortgage, say 25 years⁸. Where it protects a family, the calculation is instead about the income or costs the survivors would lose. The guide to how much life insurance cover you need works through that calculation.

A longer term and a larger sum both raise the premium, because both increase the insurer's exposure. A shorter term costs less but leaves any dependents unprotected once it ends, and taking out fresh cover later in life means re-answering health questions at an older age, which is usually more expensive.

Single or joint policy

A term policy can cover one person or two. Joint life insurance is a policy taken out by two people, typically a couple, that pays out upon the death of the first policyholder during the term; the policy then ends and does not cover the surviving partner³. Joint policies pay out in full and then finish when the first of the two policyholders dies⁶.

The main disadvantage is that there is only one payout per policy, even if both policyholders die during the term³. Because there is only going to be one payout, these policies are usually slightly cheaper compared with each partner buying an individual policy, but the price difference is often very small¹.

Two single policies cost a little more but leave each partner with cover that continues after the other's death. It is also possible to hold a joint life insurance policy and a single life insurance policy at the same time¹⁹, so a couple can mix the two. The guide to joint life insurance covers the choice, including what happens to a joint policy after a break-up.

Nothing is paid back if you outlive the policy

Term life policies only pay out if you die within the policy term⁶. If you don't die during the term, the policy doesn't pay out the death benefit and the premiums you've paid aren't returned². The policy has no cash-in value, so you get nothing back¹.

This is the feature that most often surprises people, and it is worth being clear about what it means. There is no cashback value to most life insurance policies, so if you have to stop paying later because you cannot afford it, that money is lost¹⁹. No term life insurance policies have any surrender value²: unlike some older-style policies, there is nothing to cash in at any point, whether you cancel early or the term runs out.

The premiums are the price of the insurance cover itself, paid year by year, not contributions building up in a pot. That is why term cover is cheaper than whole of life cover for the same sum insured: the insurer only ever pays out if death falls within the term, and in the nature of things most term policies expire without a claim. The narrow guide to whether a protection policy has a cash-in value covers this in more detail.

Missed premiums: when cover stops

If you miss a payment, your policy will usually end, leaving you without cover⁶. If a policy lapses due to non-payment of premiums, coverage stops, and no benefits will be paid upon the policyholder's death². In short, if the premium isn't paid, the policy lapses and cover ends²⁰.

There is often a route back. A lapsed term assurance policy can usually be re-started if you act within 13 months, with the missed premiums caught up, though a new medical underwriting assessment is likely⁶. That reassessment matters: health circumstances may have changed since the policy was first taken out, and the terms offered on reinstatement may not match the original ones. The guides on missed premiums and lapsed cover and reinstating lapsed cover set out the process.

Two protections can prevent a lapse. If the plan includes waiver of premium, the insurer will cover the premiums while you are off work ill⁴. Waiver of premium benefit means you will not have to pay your insurance premiums if you cannot work because of illness or disability²¹, though it usually does not start paying out for a while after you stop work²². Insurers may also offer payment holidays or repayment plans if you are struggling⁴.

Applying: the health questions

When you apply, you are normally asked about your current health, previous health problems and any major health problems in your family²³. Full medical underwriting means telling your insurer about your medical history, including your health, your lifestyle and the health of close relations such as parents and siblings¹⁰. The questions can be detailed: an applicant with diabetes, for example, must tell the insurer whether they have type 1 or type 2 diabetes or a rarer form, their HbA1c average blood glucose test results, any hospitalisations or significant developments, changes to treatment, and any complications experienced²⁴.

You only need to tell your insurer what you have been asked about, but it is important to answer these questions honestly and accurately²⁵. Providing false information during the application process may lead to a denial of the claim². Failure to disclose the necessary information may impact a claim later on, so the best rule of thumb is to be open and honest⁴.

The duty runs in both directions once the policy is in place. If you already have life insurance and are subsequently diagnosed with a condition such as diabetes, you don't have to tell your insurer or pay higher premiums¹¹. Similarly, treatment started after insurance cover begins does not need to be reported unless the insurer specifically requests it, though it must be disclosed on any new policy²³. And under the Consumer Insurance (Disclosure and Representations) Act 2012, an insurer may not terminate a contract for careless misrepresentation if it is wholly or mainly one of life insurance²⁶.

Insurers are legally entitled to refuse cover in some circumstances: where the medical prognosis is that you will die during the policy term, insurers can't cover certainties and are entitled to refuse¹⁵. But a pre-existing condition does not rule cover out: people with pre-existing conditions can still access level term, decreasing term, increasing term or whole-of-life cover²⁴. The guides on applying for cover, pre-existing conditions and the disclosure duty cover this in depth.

Cancelling a policy

You can cancel a term life insurance policy at any time, with no additional fees, but you may not receive any refund of the premiums paid, and cover ends on cancellation⁴. Typically, you won't get your money back if you cancel your life insurance¹⁴. If you cancel, the policy simply stops and you do not get any money back⁷.

New policyholders have a statutory cooling-off period. Under the FCA's rules, a life policy carries a 30-day right to cancel from the point the policy is concluded²⁷, and insurers must keep records relating to a life policy for at least five years²⁷. A refund of premiums paid is possible during the grace period¹⁴, though after that point the usual rule applies and nothing comes back.

One protection is worth knowing about if a policy was mis-sold. Under the Financial Ombudsman's approach to certain protection complaints, where a complainant expressly wishes cover to continue, the existing cover should continue until the end of the existing policy term, with the complainant paying the price and able to cancel at any time²⁸.

Complaints, claims and protection if an insurer fails

If something goes wrong, the route starts with the insurer. A complaint is made to the insurer first: it is headed "Complaint", sets out clearly what went wrong from the policyholder's perspective, includes dates and the names of people spoken to, and states how the problem is wanted resolved²⁹. Where an insurer rejects a claim or an application on health grounds, the stages available are: asking the insurance company to explain its decision, making a complaint to the provider, then to the Financial Ombudsman Service, and finally taking legal action³⁰.

Complaints about term assurance are relatively rare. Financial Ombudsman data shows 218 complaints opened about term assurance in the first quarter of 2026/27³¹, with an uphold rate of 19% in the third quarter of 2025/26³², meaning most complaints resolved in the insurer's favour.

When a claim is made after a death, the process starts by contacting the life insurance company to find out about the policy and how to make a claim³³. If the person had cover through work, contact their employer to find out whether they had life insurance and how to claim³³. Claims can take time: independent reporting in November 2024 found average life insurance claim processing times of 53 to 122 days for term insurance³⁴. The guides on claiming after a death and how long a claim takes cover the practicalities.

If an insurer fails, protection comes from the Financial Services Compensation Scheme. For term life insurance and critical illness insurance, the FSCS provides 100% cover where the firm failed on or after 3 July 2015, and 90% where it failed before that date³⁵. The guide to life insurance and the FSCS explains what this means in practice.

Finally, the payout itself is normally free of income tax, but it can form part of the deceased's estate for inheritance tax purposes. Writing a policy in trust keeps the payout outside the estate³⁶, and HMRC treats premiums paid by someone else as a lifetime gift, usually covered by the annual £3,000 exemption or the "gifts out of normal income" exemption³⁶. The guides on life insurance in trust and tax on payouts cover the detail.