Term Assurance
Term assurance policies provide protection for a specified period of time – the term.
They guarantee to pay out the policy benefits if the life assured dies within the term, but if the life assured lives beyond the end of that time, no benefits are payable. The term chosen for the policy should, therefore, match the duration of the person’s need for protection.
The main types of Term Assurance are as follows:
Level Term Assurance
The amount payable on death remains unchanged throughout the term of the policy.
Most appropriate where a predetermined amount of money is needed to pay off a debt within the term.
Applicable to an interest only mortgage.
Mortgage Protection or Decreasing Term Assurance
Each year that the life assured lives during the term, the initial sum assured decreases (usually according to a fixed scale) so that by the end of the term it is zero.
Most appropriate where the financial need on death decreases with each year that the life assured lives.
Applicable to a repayment mortgage or family protection.
Family Income Benefit
The policy death benefit is payable in the form of a regular income – monthly, quarterly or annually – from the death of the life assured until the end of the term selected for the policy.
Most appropriate to provide a guaranteed income for a family on the death of the life assured, and avoid the temptation to dissipate a capital sum unwisely.
Convertible Term Assurance
It contains an option to convert the policy into a permanent assurance – such as a whole of life assurance or endowment – in the future regardless of the life assured’s state of health.
It can provide temporary cover for people who need permanent life assurance but for whom it is currently too expensive, and gives them the very important option of making the cover permanent when they can afford it.
Renewable Term Assurance
It provides the option to replace the original term assurance policy with another term assurance at the end of the term, albeit at a higher premium.
Increasing Term Assurance
It provides the option to increase the sum assured during the term of the policy without evidence of good health being required.
It is typically used to protect against inflation.