What Type of Term Life Insurance​ Should I Buy?

Term life insurance is often considered one of the most straightforward and affordable types of life insurance available. There are three main types of term life. Each can be used to cover specific financial situations. We'll look at each type in more detail, along with their pros and cons.

What are the 3 types of term insurance?

There are 3 types of term cover: level, decreasing, and increasing. Each works differently and can suit different financial situations and goals.

Level term life insurance

Level term life insurance is the main type of term policy. With this option, your premium remains fixed throughout the policy term. The cover amount (the death benefit) also remains fixed.

This type of cover is ideal if you wish to cover basic financial commitments or to replace the income your family could lose if you die.

Since both premiums and benefits remain constant, it brings peace of mind knowing that your beneficiaries will receive the same amount regardless of when the claim is made during the policy term.

Pros and Cons of Level Term Insurance

Pros:

• Fixed premiums/cover – Premiums remain the same during the policy, making it easier to budget. The payout value also remains the same.
   

• Cheaper premiums – Level-term policies typically have lower premiums than whole life policies.
   

• Flexible term lengths – Available in various term options (e.g., 10, 20, or 30 years) to align with your financial needs.
   

• Ideal for temporary needs – Well-suited for covering debts, mortgages, or providing income replacement during key earning years.

Cons:

• Expires once the term ends – If you outlive the policy, there is no payout or return on premiums.
   

• Renewal can be costly – If you need cover beyond the initial term, renewal premiums can be higher.
   

• Health changes could affect future cover – If your health deteriorates, getting a new policy after your current cover expires may be expensive.
   

• Not ideal for lifetime needs – If you need lifelong cover, a whole life insurance may be better.

Decreasing term life insurance

Decreasing term life insurance is designed to cover debts, such as a repayment mortgage, where the need for cover diminishes over time. With this policy, the payout value decreases over time as you make repayments, so if you die before the debt is repaid, your family can use the death benefit to settle the outstanding balance.

The premiums remain the same throughout the policy term, even as the payout value decreases. It can provide peace of mind for your loved ones knowing they won't lose their home if anything happens to you. This type of cover is also known as mortgage life insurance.

Pros and cons of decreasing term insurance

Pros:

• Low cost – Typically cheaper than level-term life insurance because the death benefit decreases over time.
   

• Fixed premiums – Your monthly premiums usually remain the same throughout the term, even though the payout decreases.
   

• Good for mortgage protection – Often used to protect a mortgage, so it is paid off if you pass away.
   

• Protection for debts – Ensures your beneficiaries receive enough money to pay off outstanding debts without overpaying for unnecessary cover.

Cons:

• Decreasing payout – The death benefit reduces over time, meaning your beneficiaries receive less as the policy ages.
   

• Not ideal for long-term needs – May not provide consistent financial support for your dependants in the long run.
   

• Only suitable for repayment mortgages – The policy may not cover or provide suitable protection for other types of mortgages such as buy-to-let mortgages or shared ownership mortgages.
   

• May not cover other expenses – If your financial needs include more than just debt repayment (e.g., income replacement or education costs), it may not provide enough cover.

Increasing term life insurance

Unlike the other types of cover, increasing term life insurance has a death benefit that rises over the life of the policy. The main aim of this policy is to protect is particularly the payout value from inflation and to anticipate a growing need for cover.

While the premiums for increasing term life insurance could start lower, it's important to note that they will generally increase over the course of the policy. This is due to the fact that the insurer is taking on greater risk as the policyholder ages and the payout amount rises.

This cover can be ideal if you expect your financial obligations to grow over time or if you want to make sure your loved ones have adequate cover, even as circumstances change.

Pros and cons of increasing term insurance

Pros:

• Rising cover as your needs grow – The payout value increases over time to match the rise in your financial responsibilities (e.g., growing family, increasing debt).
   

• Lower initial premiums – Premiums tend to start out lower when you take out cover.
   

• Flexible – Adjusts to changing financial needs, making it a great option for families expecting significant growth or life changes.
   

• Protects against inflation – As the payout value rises, you won’t have to worry about the policy losing value in the future from inflation.

Cons:

• Higher premiums over time – As the cover amount increases, your premium payments may rise, which can become more expensive in later years.
   

• More expensive than level term in the long run – While premiums start lower, they may eventually overtake level term premiums later on.
   

• Harder to budget for – The rise in premiums can make long-term budgeting harder, especially as you age and may face other financial pressures.
   

• Potential for inadequate cover – If your premiums increase too quickly, the cover may not keep up with your growing needs or may not be sufficient to cover the mortgage or other long-term expenses.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

Which type of term life cover should I get?

When it comes to life insurance, there's no one-size-fits-all answer. The best type of term cover for you will depend on several factors including your financial situation, family needs, and long-term goals. Here's what you can do to help you work out the right policy for you:

Evaluate your financial needs

Start by going through each of your current financial responsibilities. Are you looking to provide cover for your family until your children are grown? In this case, a level term or increasing term policy may be suitable.

Or, are you looking to cover a mortgage? In which case you may find a decreasing term policy more suitable.

Consider your budget

While a level-term plan offers fixed premiums throughout the life of the policy, an increasing-term policy may start lower but can escalate over time. Be sure that any option you choose allows you to maintain cover without putting a strain on your finances as you age.

Anticipate future changes

Life is unpredictable, and future changes can greatly affect your insurance needs. For example, major life events such as marriage, purchasing a home, or having children, can suddenly increase your cover needs.

Where to get advice

When it comes to finding the right life insurance policy, getting the best deal doesn’t have to be complicated. At Cavendish Online, we understand that life insurance needs to be both affordable and suitable for your situation. With a wide range of policies to fit various budgets, you might be surprised by how accessible it can be.

If you need advice on which policy is best for your situation, our advisers can provide tailored advice on how to choose the right plan. Speak to an adviser to get started.

Or if you already know what you need you can get a quote online. Once we’ve gathered some basic information and discussed your health and lifestyle, you could have life cover arranged in as little as 30 minutes.

Let us help you protect what matters most without breaking the bank. With the money you save on premiums, you can focus on enjoying life with your family. Get in touch with us today to find the right policy for your needs!