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What is term life insurance?

A term life insurance policy insures your life for a fixed period of time and pays out a fixed sum if you die any time during the term of the policy.

Being a family person, there's always this hidden concern that in that event that you're not there, how will you love one’s cope? A life insurance policy provides them with a lump sum payout should the unfortunate happen and you pass away. In essence, you pass away in the term of the policy, your beneficiaries are paid a lump-sum.

This leaves the policyholder the peace of mind for a monthly fee, loved ones will be covered for an agreed amount which could go towards funeral expenses and pay household bills for a period, depending on the size of the cover, it could be life-altering.

If there is a need for the beneficiaries to be paid regardless when death happens, then that is called “Whole of life” cover and is more expensive than term level policies but it has no upper age limit or time restrictions.

How do term policies work? Level Term

A level term cover will payout the same amount in the first year of the policy (after the qualifying period) as in the last year of the policy.

An example of this would be, you’ve decided to take a policy that covers the term of 30 years, paying out £500k. If you die at any point in those 30 years, the beneficiaries will receive £500k from the insurance provider

Decreasing Term

More commonly referred to as mortgage life insurance. It’s a policy linked to the payment of a property and as such the prices are typically lower because the payout will be reduced each year

As an example, you’ve taken out a repayment mortgage, and the mortgage amount is £250k over 25 years. The amount the beneficiaries will receive will decline over time, as the money owed to the lender will be lower.

A decreasing term cover is designed to cover mortgage payments in the event of death to the policyholder, in the above example, the policyholder would have to pass away within 25 years of taking out the policy.

A decreasing term cover is on the whole like-for-like cheaper than level term cover

Term Life Insurance Frequently asked questions

A level term cover is an insurance policy that pays a fixed lump sum to the beneficiaries should the policyholder pass away within the life term of the policy.

The meaning of “level” in insurance is a policy which pays out a fixed amount when the policyholder dies within the duration of the policy

A level cover policy will pay out a fixed amount during the course of the policy. A decreasing cover policy (more commonly referred to as mortgage life insurance) will pay out a decreasing amount as the policy ages. It’s usually taken with a repayment mortgage because its prime purpose is to pay-off the mortgage

5-year policies are rare but available but 10 is more common and could be cheaper

Yes, there is. It’s called joint life cover, and it will pay out when the first partner passes away within the term period of the policy.

Life insurance is not subject to income tax or capital gains tax; however, you may be asked to pay inheritance tax.

It’s a tax-efficient scheme which legally allows the beneficiaries to avoid paying inheritance tax because it paid directly to them and not part of your legal estate.

Depending on what the illness is, it will vary between insurance providers. It’s likely to be more expensive than people with no ailments as the risks are higher to the insurance provider. Some companies will stipulate a clause that will exempt payout if the policyholder passes away due to illness linked to pre-existing conditions.

Yes, as a person gets older the risk increases and so the premiums will be higher for life insurance. However, this might be mitigated by a shorter and smaller cover which will bring the cost of the premiums down.

There is a policy designed for the over 50s which pays out a lump-sum often used to cover funeral expenses

Whole of life cover does just that. It will pay beneficiaries a lump sum upon the death of the policyholder, even if the policyholder dies over the age of 100

Some employers will offer their employees a policy defined in the industry as “death-in-service” benefit. The beneficiaries will receive a lump sum which normally equates to 4 times the annual salary of the late employee.