Although the vocabulary of UK life insurance is slightly different from the US, the basics are the same. Broadly, there are two types of UK life insurance:

1. Investment-type (sometimes called 'permanent insurance' or 'life assurance'). These policies will definitely pay out at some time. Endowment policies pay out at the end of a specified term or on death if that happens during the term. Whole of life policies pay out on death, whenever that occurs. Because the policy will definitely pay out at some time, they build up a cash value. It is this cash value that provides you with an investment. The protection element of investment-type policies is often very small.

2. Protection-only (also called 'term insurance' or sometimes 'temporary insurance'). These policies do not necessarily pay out at all. They pay out only if death occurs during a specified period (the term). If you survive, the policy pays out nothing. If your main aim is to protect your dependants, term insurance is often the best type of life insurance to choose, because it's generally the cheapest way to buy a lot of cover.

The answer on this page was edited based on source material from the UK Financial Services Authority. These pages are no longer being updated. --Webmaster