On this page
- What does each type of life cover pay, and when?
- How much did UK insurers pay out in 2025?
- How is an over-50s plan different?
- Is a funeral plan or critical illness cover the same thing?
- Does a life cover payout count towards Inheritance Tax?
- What should you check before choosing?
- Sources and important information
What does each type of life cover pay, and when?
Term cover runs for a set number of years. MoneyHelper, the government-backed guidance service, says term policies only pay out if you die during the policy, and Which? says that if you do not die during the term, the policy does not pay out the death benefit.
Whole of life cover has no end date. MoneyHelper says these policies pay out no matter when you die, as long as you keep up with the premiums, are typically more expensive than shorter-term policies, and are often used to help towards a funeral or for Inheritance Tax planning. An over-50s plan is a kind of whole of life cover with guaranteed acceptance and a fixed cash sum.
| Type | Pays out whenever death comes? | What the payout does | Main thing to check |
|---|---|---|---|
| Level term | No, only within the agreed term | Same lump sum at any point in the term | Nothing is paid if the person outlives the term |
| Decreasing term | No, only within the agreed term | Falls each year, designed for a repayment mortgage | Pays less the later in the term death comes |
| Whole of life | Yes, while payments are kept up | Lump sum whenever death comes | Typically costs more than term cover |
| Over-50s plan | Partly, full cover only after a waiting period | Fixed cash sum that does not rise with prices | You can pay in more than it pays out |
How much did UK insurers pay out in 2025?
The Association of British Insurers (ABI) says insurers paid out £7.84 billion in individual and group protection claims across 2025, and paid 97.9% of claims on individual policies.
The averages differ partly because the products do different jobs: MoneyHelper says decreasing term cover is designed for repayment mortgages, and whole of life cover is often used towards a funeral. The ABI's life figure also includes group cover through employers.
| Type of cover | Total paid | New claims | Share of claims paid | Average payout |
|---|---|---|---|---|
| Life (individual and group) | £4,031m | 48,055 | 96.7% | £83,892 |
| Whole of life | £1,477m | 193,577 | 100% | £7,631 |
| Critical illness | £1,422m | 20,498 | 90.2% | £69,375 |
How is an over-50s plan different?
MoneyHelper says you do not need to answer any health questions or get a medical check to be accepted, and that you are guaranteed a fixed payout when you die.
- There is a waiting period. MoneyHelper describes being fully covered after one year; a Financial Ombudsman Service decision describes a plan with a two-year waiting period.
- What a death inside the waiting period pays depends on the terms. In one Ombudsman decision, a plan paid 150% of the premiums paid for a death in the first two years other than by accident.
- You can pay in more than the plan pays out. MoneyHelper says you might pay in more over time than your family will get back.
- Stopping payments usually ends the cover. Which? says these plans have no cash-in value, and that if you stop paying you get nothing back.
- The sum is fixed. MoneyHelper says the payout stays the same and will not keep up with rising prices.
Is a funeral plan or critical illness cover the same thing?
No. A pre-paid funeral plan pays for a funeral in advance and has been regulated by the Financial Conduct Authority (FCA) since 29 July 2022. The FCA says 26 funeral plan providers had been authorised when it started regulating the sector, and its rules include a ban on commission payments. MoneyHelper says there are important differences between over-50s plans and funeral plans.
Critical illness cover is separate again: Which? says it pays out if you develop a listed life-changing illness, rather than on death.
Does a life cover payout count towards Inheritance Tax?
It can. GOV.UK says there is normally no Inheritance Tax to pay if an estate is worth less than £325,000, and that the standard rate is 40%. MoneyHelper says that without a named beneficiary a payout goes into the estate, which could mean it is subject to Inheritance Tax.
Which? says payments can be set up to go into trust, so the family receives the money sooner. MoneyHelper advises getting advice from a solicitor or financial adviser, because setting up life cover for Inheritance Tax can be complicated. This page is information, not financial or insurance advice.
What should you check before choosing?
Kinship Protection (coming soon): When they pass away, a cash sum goes to the people they choose, to use however they need.
Questions people ask
Does term life cover pay anything if you outlive it?
No. Which? says that if you do not die during the term, the policy does not pay out the death benefit.
Is an over-50s plan the same as a funeral plan?
No. A pre-paid funeral plan pays for a funeral in advance and has been regulated by the FCA since 29 July 2022; an over-50s plan pays a fixed cash sum, and MoneyHelper says there are important differences between the two.
Do insurers pay most life claims?
The ABI says UK insurers paid 97.9% of claims on individual protection policies in 2025. Across individual and group cover combined, 96.7% of life claims and 100% of whole of life claims were paid.
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Sources
- MoneyHelper (Money and Pensions Service), What is life insurance?, checked 10 November 2026
- MoneyHelper, Life insurance for over 50s, checked 10 November 2026
- MoneyHelper, Planning a funeral: costs and prepaid options, checked 10 November 2026
- MoneyHelper, A guide to Inheritance Tax, checked 10 November 2026
- Which?, What is life insurance? The different types of policy explained, 14 October 2026
- Which?, Over 50s life insurance: how to buy the best policy, 6 October 2026
- Which?, 3 things to know before taking out over-50s life insurance, 20 November 2025
- Financial Ombudsman Service, decision DRN-4899984 (over-50s plan terms)
- Financial Ombudsman Service, decision DRN-5548041 (two-year waiting period)
- Financial Conduct Authority, Setting high standards for pre-paid funeral plans
- GOV.UK, Inheritance Tax, updated 30 September 2026
- Association of British Insurers, Protection insurers pay out £7.84 billion in 2025, 29 June 2026
Prices in naira are quoted with their date because they move. Where a figure comes from a commercial provider, the source is described rather than named, and nothing on this page recommends a provider.
This page is information, not advice. Kinship wrote it from the sources listed above and checked it on the date shown. It is not medical, legal, financial or insurance advice, and it does not take account of any one person's circumstances. Decisions about treatment belong with the person and their doctor; decisions about money, insurance or immigration with the person and a qualified adviser. Our platform terms apply.