Term life insurance: level, decreasing and increasing cover

Term life insurance covers you for a fixed period, such as 10, 20 or 25 years, and pays out only if you die within that period. If you're alive when the term ends, the cover stops and nothing is paid. MoneyHelper describes three kinds: level, where the payout stays the same; decreasing, where it falls each year; and increasing, where it rises to keep up with inflation.

Which shape fits depends on what the money is meant to do. A debt that shrinks, like a repayment mortgage, lines up with decreasing cover. A need that stays roughly the same, like supporting a family until the children are grown, lines up with level cover.

How term life insurance works

You choose three things: how much cover, for how long, and whose life is covered. The insurer asks about your health, lifestyle and job, then offers a premium. As long as you keep paying, the policy stays in force until its end date.

The ABI describes term insurance as cover for a specified number of years, usually until retirement age, paying a lump sum that is commonly used to clear an outstanding mortgage if the policyholder dies early.

Because a term policy only pays if death happens within the term, it is usually cheaper than whole of life cover for the same amount. MoneyHelper calls level term the simplest and most affordable option.

Level vs decreasing vs increasing term

Level term

The sum assured is fixed. If you take out cover of a set amount for 25 years, that is the amount paid whether you die in year two or year twenty-four. The catch is inflation: the same amount buys less in later years.

Decreasing term

The sum assured reduces over the term, usually to follow a repayment mortgage. HMRC's manual describes mortgage protection cover in the same terms: a capital sum payable on death within a set period, falling over that period, with the aim of meeting the loan outstanding at the date of death.

Decreasing cover follows a pattern set when you buy it, not your actual mortgage balance. If you later extend your mortgage, borrow more or switch to interest-only, the two can drift apart.

Increasing term

The cover rises over the term to help keep pace with inflation, according to MoneyHelper. Check how the increase is worked out and whether the premium rises too, as the policy terms will set this out.

Illustration only: a level policy for 200,000 pays 200,000 at any point in the term. A decreasing policy that starts at 200,000 might pay well under half that in its final years, because it is built to track a loan that has mostly been repaid.

Term cover that pays an income instead

Family income benefit is a type of term cover that pays a regular amount for the rest of the term instead of one lump sum. HMRC describes the payments as a series of capital sums on death rather than income. See family income benefit.

What changes the cost

MoneyHelper lists the main factors:

• your age
• your health and family medical history
• whether you smoke
• your lifestyle
• your occupation
• the length of the policy
• the amount of cover

The shape of the cover is priced in too, so it can help to ask for level and decreasing quotes side by side for the same starting amount. Extras such as critical illness cover or waiver of premium are added to the price.

Single, joint, or more than one policy

Term cover can be on one life or two. MoneyHelper says a joint policy is usually cheaper than two single policies but pays out only once, on the first death. Two single policies can each pay out. See joint life insurance.

Some households use more than one term policy, for example decreasing cover for the mortgage plus level cover for family costs. That can be easier to match to each need than one large policy.

Claims and refusals

The ABI reports that 97.9% of individual protection claims were paid in 2025. The FCA's November 2024 review found term insurance claims took on average between 53 and 122 days from start to finish, partly because insurers have to gather evidence.

The most common reason for trouble is the application. When a claim comes in, MoneyHelper says insurers check medical history, and a wrong or incomplete answer can lead to a reduced or refused claim. Our guide to declined life insurance claims explains the rules.

Trusts and term cover

If a term policy isn't in trust, MoneyHelper says the payout goes into your estate, which can mean delay and possible Inheritance Tax. Many insurers offer a trust form when you buy cover. See life insurance in trust, which includes the different rules in Scotland.

What to check in your policy

• Cover type: level, decreasing or increasing, as stated in the policy schedule
• Decreasing rate: the interest rate or pattern the cover assumes, and how it compares with your mortgage
• End date: whether it still matches your mortgage term and your children's ages
• Current sum assured: what it would pay today, not what it started at
• Increase terms on increasing cover, and whether premiums rise with it
• Premiums: whether they are fixed for the term or reviewable
• Lives covered: single or joint, and whether joint cover pays on first death
• Trust: whether the policy is written in trust and who the trustees are
• Exclusions and extras: any added exclusions, and what you pay for critical illness or waiver of premium
• Cancellation: FCA rules give a 30-day cancellation period on a new life policy

When to talk to a regulated adviser

Deciding between level and decreasing cover, or how to split cover across policies, depends on your debts, income and family. A regulated financial adviser or protection broker can recommend the right mix. If you're replacing an existing policy, MoneyHelper's guidance is not to cancel the old one until the new one is fully set up and the first payment has been made.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.