Term Assurance (also known as temporary assurance) is a basic form of life assurance protecting against death only within the term of the policy.
Because it offers no element of investment is represents the cheapest form of life cover available.
The term of the cover can be anything from just a few months, to cover a short term need for extra life insurance (a bridging loan for instance) to a term of up to, say, 40 years or more. It is important to note that, where the term of the policy extends to beyond age 65 it may be worth considering a whole-of-life policy instead of term assurance.
Features of Term Assurance policies:
- Term can range from a short to a very long period.
- Normally there is no surrender value at any time during the policy.
- Contributions may be made as a single premium or paid monthly or annually.
- The premiums paid normally remain level (even if the sum assured varies year to year)
- Most policies will lapse if payments are not made within a short period after the due date (around 30 days normally). Some companies will allow re-instatement of the policy within 12 months but this will normally require premiums to be brought up to date and medical evidence is normally required to confirm continued good health.
The main types of Term Assurance are as follows:
Level Term Assurance
The sum assured remains at a level amount throughout the term of the policy.
Decreasing Term Assurance
Most commonly used in conjunction with a repayment mortgage this type of Term Assurance offers a level of cover which decreases to zero from the amount set initially, usually in equal annual amounts, over the period of the policy. Because the level of cover is decreasing throughout the term of the policy this type of cover is usually cheaper than a similar Level Term Assurance starting at the same amount of cover.
Increasing Term Assurance
Similar to Decreasing Term but in reverse ! The amount of cover starts at a low level and increases over the period of the policy. Please note that underwriting will be based on the final level of cover and not the initial (lower) amount.
Convertible Term Assurance
This is a Term Assurance which includes an option to convert the policy into a whole-of-life or endowment assurance without the need for further evidence of health. Because this option does allow further benefits it will naturally cost a little more than a comparable policy without the “Convertible” option. This extra amount may be around 10% – 15% of the premium and will be subject to other rules and restrictions which your adviser will discuss with you should this policy be an option for you.
Renewable Term Assurance
This is a Term Assurance offering the option to renew the policy at the end of the initial term without further medical evidence being required. The is usually a maximum age limit of 65 after which there will be no renewal option but this type of policy can be very useful if you are initially unsure of how long cover is required for but wish to secure an option as detailed.
You adviser will discuss all these options in more depth with you but you should note that some companies offer policies which combine some or all of the options listed above.