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Term Insurance is a category of insurance that pays a tax
free lump sum to you or your family if you die or fall terminally
ill whilst the policy is in force.
Term Insurance is known as Term Insurance because the policy
only remains in force for a pre-determined length of time
– its’ “term”.
Term Insurance is just another name for life
Insurance. There are no differences between the two.
When you arrange your policy you decide how long you wish
the cover to last. Most policies are taken out for between
20 and 25 years but you can have one for as little as 7 years.
Whilst all insurance companies will provide insurance cover
to age 65 but few will provide cover beyond. Age 70 is probably
the oldest you will find insurance cover for. Even then, it
is likely to be very expensive. 
All Life Insurance policies provided by the well-known UK
Insurance Companies will include Terminal
Illness Cover free of charge. Terminal Illness Cover provides
for the policy to pay out immediately if a policyholder were
diagnosed with an illness or condition from which a Medical
Doctor expects the policyholder to die within 12 months of
the diagnosis. If the policy pays out for Terminal Illness
the policy is finished. It will not pay out again when the
policyholder dies.
“Joint” Term Insurance is common. This type of
policy insures two lives. (A policy that insures just one
person is called a “Single” policy). With Joint
policies, most people choose the option that pays out if either
of the policyholders dies during the policy’s term.
Another alternative would be to choose the option that only
pays out if both people were to die during the policy’s
term.
Term Insurance is also available with either “Level”
or “Decreasing cover”. With Level cover, the insured
sum remains constant whilst the policy is in force. With Decreasing
cover, the insured sum steadily reduces during the policy’s
term. Because the insurance company’s risk is reducing
the premium for Decreasing cover is lower than for Level cover.
Decreasing Term Insurance is always used to support a repayment
mortgage. With a repayment mortgage, the capital you owe is
reduced each month as part of your monthly mortgage repayments
repay the original sum borrowed. Therefore, as time goes by
the out standing capital owed on the mortgage is reduced and
you will need less insurance to repay the debt if you were
to die. As you would expect, Level
Term Insurance is more expensive than Decreasing
Term Insurance.
At no stage does a Term Insurance policy have any investment
value. Once the policy has completed its’ term, that’s
it - the policy is finished and has no value. If you are looking
for a policy that has an investment value, you need a Life
Assurance policy.
Please note that our notes are not exhaustive. We are simply
trying to give you more insight into Term Insurance. There
are other options available.
The following Frequently Asked Questions are related to the
above topic. You may care to read them: -
What is the difference
between a Reviewable and a Guaranteed policy?
What are the most common optional
extras available on life insurance policies?
What is the difference
between Life Assurance and Life Insurance?
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