Term Life Insurance
What is Term Life Insurance?
This is a type of cover that runs for a set period of time. That could be until your children have left home or your mortgage has been paid off.
If flexibility is what you are looking for then term life insurance might be right for you.
Our trained advisors will ask how long you want the policy to run for and how much you want it to pay out - the price will depend on your age, health and occupation amongst other factors.
What Are the Benefits of Term Life Insurance?
One of the benefits of term life insurance policies is that the insurer will only pay out if you pass away during the fixed term, so there's less risk for them which, in turn, makes the premiums cheaper than other policies such as whole of life insurance.
Types of Term Life Insurance
Term life cover is by far the most straightforward type of policy, but there are still some big decisions to make.
There are two main types of term life policies; level term insurance (otherwise known as level term assurance - LTA) and decreasing term (also referred to as decreasing term assurance - DTA).
What Does Level Term Life Insurance Mean?
Level term cover (LTA) means that your policy will pay out the pre-agreed lump sum if you die at any time during the insured period. The term length and payout amount is all set from the start and is agreed by you when taking out the policy.
Decreasing Term Life Insurance
Decreasing term assurance (DTA) is a cheaper option; this is where you might decide you need less cover as time goes on. With this type of policy, the payout reduces by an agreed amount each year.
Typically, people will have this type of policy set up to run alongside a mortgage. This is because over time, your mortgage normally reduces as you continue to pay it off and you may have also paid off other debts as the time has gone on. This ultimately means that you are leaving less debt behind for your family to pay off, so you need less insurance cover as time goes on.
This policy might be right for you if you have a young family and a long time left to pay off your mortgage. Due to the fact that your cover decreases over time, you are seen as a lower risk for most insurance providers, meaning that your premiums could be a lot cheaper than, say, an LTA policy.
The Difference Between Decreasing and Level Term
Level term insurance has a fixed payout amount that doesn't change during the remaining time on the policy, and it is designed to leave a large lump sum to your family when you pass away.
Decreasing term is often linked to a mortgage so that your family won't have to worry about paying it off if you die within the term or become critically ill (this only applies if you have an additional critical illness cover policy).
For such reasons, the amount of cover that would be paid out on a decreasing term decreases over time, but your monthly premiums will remain the same. You can review these premiums with policy providers at a later date to see if you can make any savings - just get in touch with us and we'll review your policy!
A level term payout will not decrease over time and neither will the premiums, however, the monthly premiums are likely to be more expensive than those that come with a decreasing term policy. For example, you might pay £10 per month for a payout of £50,000 with a decreasing term policy, or it may cost £20 per month for a payout of £50,000 with a level term cover policy. This is just an example and the cost of your insurance policy will depend on a number of factors, such as your age, health, whether you smoke or not, etc.
Term life insurance Vs Whole of life insurance
Whole of life insurance does not have a set term; it lasts, as the name suggests, all of your life and is guaranteed to provide a payout to your family or inheritors once you pass away.
This policy works out more expensive because, eventually, the insurance providers will have to pay out. With term insurance, however, the insurance provider will calculate the risk and that is based on the likelihood of you dying within the term period. If you do pass away, they will have to pay out the assured amount, but if you survive the policy terms then they will not have to payout. While this may seem like a negative - it's not! You're still alive at the end of the policy and, of course, that's a major positive.