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Insurance
Posted: November 2019

Term life insurance

 

One of the pillars of financial protection

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. This can range from as few as five to as many as 30 years, but a typical period for a term policy is ten years.

If you die within the term, the policy pays out to your beneficiaries. A term policy is straight insurance with no investment component. 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 of your take-home income to be paid out to your family if you die.