Term life insurance
Helping you repay a debt, like a mortgage and credit cards, or provide a legacy for your friends and family
Term insurance gives you life cover over a pre-agreed period of time. If you die during this period, your policy pays out a lump sum. This type of cover is useful for providing financial security for your dependents.
With term life insurance, you choose the amount you want to be insured for and the period for which you want cover. This is the most basic type of life insurance. If you die within the term, the policy pays out to your beneficiaries. If you don't die during the term, the policy doesn't pay out, and the premiums you've paid are not returned to you.
Factors affecting your term insurance premiums
how long you want the cover for
the level of cover you need
whether you smoke
There are two main types of term life insurance to consider – ‘level-term’ and ‘decreasing-term’ life insurance.
Level-term life insurance policies
A level-term policy pays out a lump sum if you die within the specified term. The amount you're covered for remains level throughout the term – hence the name. The monthly or annual premiums you pay usually stay the same, too.
Level-term policies can be a good option for family protection where you want to leave a lump sum that your family can invest to live on after you've gone.
It can also be a good option if you need a specified amount of cover for a certain length of time, for example, to cover an interest-only mortgage that's not covered by an endowment policy.
Decreasing-term life insurance policies
With a decreasing-term policy, the amount you're covered for decreases over the term of the policy. These policies are often used to cover a debt that reduces over time, such as a repayment mortgage.
Premiums are usually cheaper than for level-term cover, as the amount insured reduces as time goes on. Decreasing-term assurance policies can also be used for Inheritance Tax planning purposes.
Family income benefit policies
Family income benefit life assurance is a type of decreasing-term policy. Instead of a lump sum, though, it pays out a regular income to your beneficiaries until the policy's expiry date if you die.You can arrange for the same amount as your take-home income to be paid out to your family if you die.
The premiums and cover will increase during the term of the policy. This can be used to keep in line with inflation or to cover an increasing debt.
This has the option to exchange the original term assurance for another term assurance at the end of the term. The main benefit here is guaranteed insurability.
If you have any questions around this topic, please feel free to get in touch with us directly.