Life insurance companies may seem to offer a bewildering number of policies, primarily because each different type of policy is designed to provide life cover in quite specific circumstances. The good news is that term life insurance is a relatively simple type of cover which is usually available at very affordable rates.
So what is term life cover?
In life insurance parlance, the word ‘term’ refers to the fixed period of time (e.g. 10, 15, 20 years or more) during which the insured person wishes to be covered against the risk of death. Should this event occur during the policy term, then a fixed sum (agreed at the outset) will be paid out to specified beneficiaries. These are usually dependent family members.
Why choose the term life policy option?
Because a term life policy covers the risk of death for a fixed period, it is particularly useful (and affordable) way to protect your financial interests for a set time. For instance, you may have taken out a mortgage or some other type of large loan commitment which is repayable over a set period. A term life policy can be set up to pay out the amount of this loan (e.g. £150,000) if you were to die before all repayments had been made. As a result, your loan would be settled without fuss, which would be a great advantage to your dependents.
And likewise, you could take out cover for a significant sum of money to be paid out in the event of your early death within the insured term. If set up to cover a term of 15 or 20 years, this money would help your partner to raise a growing family without financial hardship.
How much does term life cover cost?
Costs for this type of life cover will vary in accordance with four main features: your health and lifestyle (e.g. cover will be more costly if you are a smoker and/or have a number of health issues); your age – generally speaking this cover is cheaper the younger you are; the amount the policy will be expected to pay out; and the term of years you wish to cover.
Though insurers may often quote slightly different rates, term life cover still remains a relatively inexpensive product.
What happens at the end of the policy term?
If you survive until the end of the policy term, the life insurance contract automatically ceases. That means you will no longer benefit from life cover. Therefore, it is very important to be clear when taking out term life insurance that it covers a specific risk (i.e. your death) for a specific length of time (the term of years stipulated in your policy contract).
Could I continue cover under a new term life policy?
In theory it would be quite possible to take out a further policy to continue your life cover. However, your increased age at the end of the policy term would make new cover more expensive to arrange. Unless you are faced with changed circumstances and fresh domestic financial commitments, it is usually best to think of term life cover as a ‘one-off’ solution to meet pre-defined needs.
Does this insurance have a cash-in value?
There is no cash-in value for a term life policy. It is a simple policy created to provide basic financial protection. That means the low monthly payments you make will never be used to build up any ‘investment’ value which could be returned to you on cancellation of the policy.
Like most forms of life insurance, you will get the best out of a term life insurance by careful financial planning to ensure your chosen policy will fully meet your needs from the outset.