Term Life Insurance is a category of insurance that will payout a lump sum to you or your family if you die or fall terminally ill during the term of the policy.
Term Insurance is known as Term Insurance because the policy will only remain in force for a pre-determined period of time or its’ “term”.
Term Insurance is also referred as “Life” insurance. There are no differences between the two.
You decide at the start of the policy how long you wish to be covered for. The majority of policies are taken out for 20 or 25 years but you can have one for as short as 2 years. Please note, all insurance companies will provide cover to age 65 but not many of them will provide cover beyond, 70 years is probably the oldest age to which you will get cover. However it is likely to be very expensive.
In our experience all Life Insurance policies provided by the big name UK Life Companies now includes Terminal Cover free of charge. Terminal Cover is an additional cover whereby the policy pays out immediately if a policyholder were diagnosed with an illness or condition, that they are expected to die from within 12 months. If the policy pays out on Terminal Illness the policy is finished and will not pay out again when the policyholder dies.
“Joint” Term Life Insurance is also very common. It is a policy that insures two lives rather than one. Most people arrange for the policy to pay out if either of the policyholders were to die or to become terminally ill. Another option is a policy, which will pay out only if both people die during the policy’s term.
Term Insurance can be either “Level” or “Decreasing cover”. With Level cover, the sum insured, will remain constant during the policy is in force.
With decreasing term insurance the sum insured steadily reduces during the policy’s term. Decreasing Term Insurance is generally used to support a repayment mortgage. With a repayment mortgage, the capital you owe reduces each month because part of your monthly mortgage repayments goes to repay the original sum borrowed. As time passes the capital outstanding on the mortgage will reduce and, so you need less Term Life cover to repay the debt upon your death. As you would expect, Decreasing Term Insurance is much cheaper than Level Term Insurance.
It is also important to note that a Term Life Insurance policy does not contain any investment value. Once the policy term is completed, that’s it. The policy is finished and has no surrender value. If you are looking for a policy which contains an element of investment value, you require a Life Assurance policy. (For further information relating to Life Assurance click here: What is the difference between Life Insurance and Life Assurance?)
Please note that ths FAQ is not exhaustive. They are designed to provide
a general understanding about Term Insurance. There are other variations and optional
extras available as well.
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