%20(2).webp)
When you are looking to buy life insurance one of the first decisions you will need to make is how long you need your cover to last. We explain how this will be determined by the financial responsibilities and obligations that you need to protect.
Picking the wrong term length is a common pitfall when buying life insurance. Unfortunately, getting it wrong can have serious repercussions. These include:
There is no all-encompassing answer to how long your life insurance policy should last.
Instead, consider your personal circumstances and the reasons you want to get life insurance. When you're clear about your goals for buying life insurance, it's easier to understand how long your cover should last.
Let's look at five of the most common reasons people buy life insurance and the lengths of time that may best align with them. Some of these financial obligations will have definite end dates so are well-suited to a specific term length, but others will have no clear time limit.
Let’s start with those financial obligations that may have a fairly clear end date.
A mortgage is typically the biggest financial commitment you will ever have, so covering a mortgage is often the main reason for taking out life insurance.
For this reason, most people will take out a term life insurance policy with a term that matches the length of their mortgage, so select a 25 year term for a 25 year mortgage. The idea is that the mortgage should have been paid off by the time that the life term insurance expires, so you may no longer need any life insurance after this financial commitment has ended.
The same is true if you're using life insurance to cover any other type of outstanding debt, such as a car loan.
If you decide to extend the length of your mortgage then you should review your life insurance and make sure that you have cover that matches your new mortgage term.
Many people take out life insurance to support their loved ones if they were to pass away unexpectedly. The lump sum from a life insurance policy can be used to maintain your family's lifestyle (e.g. living costs, school fees, transport, food, utility bills) if you and your income are no longer around.
If you have children, you probably realise how expensive they can be. According to research from the Child Poverty Action Group the cost of raising a child to the age of 18 is £260,000 for a couple.
If supporting your family is your priority, you need to consider how long it will be until your children become independent. While many expect their kids to be self-sufficient by 18, the reality is that they may need support for several years beyond that, especially if you’re covering the costs of higher education. The timeline for independence can vary depending on their plans and future goals.
As a result, you should choose a life insurance term length that lasts until they are old enough to look after themselves without your support. This could be when your youngest child has finished university, for example.
Also, think about how long you have until you retire. If you have a spouse or partner that relies on your income, you could choose a life insurance term that lasts until your retirement date. That way, if you pass away during that time, the life insurance payout would cover your salary.
While some life protection needs can be neatly aligned with a specific term length, others are more open-ended: we know they will happen but we just don’t know when. Let’s turn our attention to those.
Some people take out a life insurance policy to cover their funeral expenses. This may be because they want an elaborate, expensive send-off, or perhaps they just don't want to burden their loved ones with funeral costs at an already difficult time.
Because you can’t be certain of when you will die and need to pay for your funeral, a term life policy will be unsuitable. Otherwise, you could get to the end of your term and still be alive.
For this reason, a whole of life policy or over 50s life insurance, which do not expire and guarantee a payout, will be better suited.
Some life insurance policyholders take out cover to provide a nest egg for their loved ones when they're no longer around.
The payout could be used to help younger family members buy a car or put a deposit down on a house. It could be used to provide a little extra financial security.
If this is the main reason you want to buy life insurance, then a whole of life insurance policy or over 50s life insurance which have no expiry date are the only way to guarantee that your beneficiaries will receive a legacy when you pass away.
Inheritance tax is charged on the entire value of your estate after its value reaches a certain threshold. Depending on the size of your estate, your family could be faced with a large inheritance tax bill when you pass away.
It's for this reason that some people take out a life insurance policy to cover their inheritance tax bill. Again, this is not a time specific event so only a whole life insurance policy will be guaranteed to meet this need.
If you're getting life insurance to pay inheritance tax, make sure you get your policy 'written in trust'. When you do this, your life insurance payout is not considered part of your estate and does not count towards your inheritance tax threshold. You can talk to an insurance broker or financial adviser who can help you set up your trust correctly.
Different life insurance policies can last for different lengths of time so your protection responsibilities will shape what type of product you will need to pick to match this time period.
The length of time your life insurance policy lasts is called the term. When you first buy term life insurance, you'll get to choose the length of the term. Insurance providers typically offer terms of anything between one and 50 years.
If you pass away during the term that you specified (and you've stayed up-to-date with your monthly premiums), your loved ones can make a claim for a lump sum payout.
There are four different types of term life insurance that work this way:
When thinking about how many years you should have life insurance for, keep in mind that the longer the term the higher your monthly premiums. Moneyfacts data shows that the average monthly premium for a 35-year-old non-smoker with £100,000 of level term insurance for a 10-year term is £5.99 but rises to £8.48 for a 30-year term.
An alternative life insurance option is whole of life insurance, also known as life assurance.
Crucially, with whole of life cover, there is no set term. Instead, the cover lasts for your whole life, and your loved ones are guaranteed to receive a lump sum after you pass away.
Over 50s life insurance is a type of whole of life policy where acceptance is guaranteed (with no requirement to disclose medical information) and your loved ones are sure to receive a payout.
Many term insurance policies are taken out to protect a mortgage commitment, so it is perhaps unsurprising that the most common term period among those with life insurance is up to 20 years (31% of policyholders). Policies of less than 10 years are the least common option, suggesting that fewer people opt for short-term cover.
When choosing a life insurance policy, it’s important to consider age restrictions imposed by UK insurers as these can affect the maximum term length available to you.
Most insurers set an upper age limit for policyholders - typically around 90 years old for term life insurance. This means that the older you are when you apply, the shorter the maximum term length you can choose. For example, if an insurer has a maximum policy age of 90, and you apply at age 60, the maximum term you may qualify for is 30 years.
Whole of life cover does not have an upper age limit so your life insurance runs out when you pass away - not before.
When your term life insurance policy ends, you're no longer covered. In addition, you don't get back any of the money you put in as premium payments.
You now have two options:
If you're buying a new life insurance policy, select the type of policy and term length that align with your new reasons for purchase.
However, keep in mind that your new life insurance policy will likely be more expensive than your previous one, particularly if you've suffered from health problems or have any pre-existing medical conditions.
Once you've decided to get life insurance cover and have an idea of the type of policy and the term length you need, you can investigate what's available. It's easy to go online and compare life insurance quotes.
However, it's always advisable to get expert help from a specialist insurance broker. Your broker will talk you through your options and help you choose the right cover and term length.
Buying life insurance isn't something you need to do alone. Talking to a life insurance broker should be the first step of your life insurance journey.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Mike is a personal finance copywriter who has written for numerous financial services publications and websites over many years.
The length of time you pay for life insurance depends on the type of policy you choose. For term life insurance, payments last for a set number of years (e.g., 10, 20, or 30 years). With whole of life insurance you pay premiums for your entire life. You should always review your policy to understand the payment structure before you sign up for life insurance.
Unfortunately not. You do not receive any payments if you reach the end of your life insurance cover. And, of course, you won’t be covered.
Many insurance companies allow customers to extend the length of their term life insurance policies. If you're coming to the end of your term and you want to extend it, it's always worth talking to your provider.
However, your insurer will probably want to re-evaluate your premiums, as many years will have elapsed since the original payment schedule was devised.
