What is Term Life Insurance?

Term Life 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 so called because the policy only remains in force for a pre-determined period of time – its “term”.
Term Insurance is also known as “Life” Insurance. There are no differences between the two.

You decide at the outset of the policy how long you wish the cover to last. The majority of policies are taken out for between 20 and 25 years but you can have one for as short as 7 years. But please note, all insurance companies will provide cover to age 65 but not many of the will provide cover beyond. Age 70 is probably the oldest age you will find cover for and even then, it is likely to be very expensive.

In our experience all Life Insurance policies provided by the big name UK Insurance Companies include Terminal Cover free of charge. Terminal Cover is a provision whereby the policy pays 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 that is it, the policy is finished and will not pay out again when the policyholder dies.

“Joint” Term Insurance is also very common. It is a policy which insures two lives. (If the policy only had one policyholder it would be called a “single” policy). With Joint policies, most people arrange the policy to pay out if either of the policyholders were to die or become terminally ill. An alternative option is a policy which only pays out if both people die during the policy’s term.

You can also have Term Insurance with either “Level” or “Decreasing cover”. With Level cover, the sum insured, remains constant whilst the policy is in force.

With Decreasing cover sum insured, steadily reduces during the policy’s term. Decreasing Term Insurance is especially useful to support a repayment mortgage. With a repayment mortgage, the capital you owe is reduced each month as part of your monthly mortgage repayments repays the original sum borrowed. Therefore, as time goes by the capital outstanding on the mortgage reduces and, therefore, you need less insurance to repay the debt if you were to die. As you would expect, Decreasing Term Insurance is cheaper than Level Term Insurance.

It is important to note that a Term Insurance policy does not have an investment value. Once the policy completes its term, that’s it. The policy is finished and has no value. If you are looking for a policy which does have an element of investment value, you need a Life Assurance policy.

Please note that these notes are not exhaustive. They are simply designed to provide more insight into Term Insurance. There are other variations and optional extras available. MoneyQuest will give you further information.

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