Whole of life sales have plummeted following a change in non-investment linked marketing emphasis among providers, Swiss Re's Term and Health Watch 2013 has shown.
The report showed a 14.1% decrease in the number of new individual whole life policies sold last year.
But elsewhere the individual market remained stable with strong 8.7% growth in income protection (IP) sales.
According to the reinsurer, it was driven by a move to limited benefit payment policies, which accounted for 25.2% of new sales.
There was a slight decline of 1% in term assurance sales compared to 2011, however the result included a significant jump in new mortgage related sales of 7.9%.
Average new annual premium showed a slight increase of 3.6%, reversing the negative trend of the last four years.
The individual critical illness (CI) market showed little change compared to 2011, with a 1.7% increase in new sales.
Sally-Anne Etienne, market head for life and health in the UK at Swiss re, said: "The market has generally remained stable despite quite difficult economic conditions in 2012. The growth in income protection and mortgage-related sales is very promising.
"The Mortgage Market Review will be introduced in 2014 and this is expected to make the advice process more professional, making more people aware that they need to protect their loans."
The reinsurer said the report showed the industry had "generally" coped well with the impact of gender-neutral pricing and the changing tax basis for life products with a positive industry feeling towards developing simple products.
This year's report is based on data from 27 insurance providers representing close to 100% of all individual protection sales.
The report covers the individual term assurance, critical illness, income protection and whole life markets.
Ron Wheatcroft, expert on the UK individual protection market and co-author of the report at Swiss re, said: "The protection market had a lot to cope with in 2012. The results show a slight trend towards disability covers with increases in both new IP and CI business.
"Disability cover will become even more important as welfare reforms bite; consequently, we are optimistic that this will be a strong base from which concerted rapid growth will emerge."
Term and Health Watch also contains a survey of 48 market participants.
Etienne said: "Many respondents stressed the need to communicate better with consumers, particularly if they are not engaging with the market through an adviser.
"It is important that we are transparent in our propositions. The findings indicate that while most people believe that publishing claims data can be useful, appropriate case studies give important insights into how our products can meet their needs."
Chris Hulme, director of advice firm The Clayton Hulme Partnership, said the biggest change the firm had noticed with whole of life in the last year was the move from investment linked to non-investment linked products.
"The move will have had an impact on the product pricing. There used to be a choice of different combinations of different investment and protection levels which is not there anymore so it will have had an impact in that way," he said.
Diabetes Awareness Week
'Whatever else changes in the world there are always lies, damned lies and insurance sales figures'
Available on SolutionBuilder portal
Totalling £3.4 million