Protection that spans a predetermined duration
Term life insurance is a form of life protection that spans a predetermined duration (referred to as a ‘term’) – the payment is made in one lump sum. This coverage is valuable for safeguarding the financial well-being of dependents.
When selecting a term life insurance policy, you determine the desired coverage amount and the term length. This is the most fundamental kind of life insurance. If you pass away within the term, your beneficiaries receive the policy payout.
If you outlive the term, the policy does not pay out, and the premiums you’ve contributed are not refunded.
Every family’s situation varies. It’s crucial to consider how yours would be impacted if you were no longer present, despite the difficulty of such thoughts.
There are two primary types of term life insurance to evaluate – ‘level-term’ and ‘decreasing-term’ life insurance.
Level-term life insurance policies
A level-term life insurance policy provides a lump sum payment if you die within the designated term. The coverage amount remains constant throughout the term, hence the name. The monthly or annual premiums typically remain unchanged as well.
Level-term policies can be an excellent choice for family protection, allowing you to leave a lump sum for your loved ones to invest in their future after your passing. It can also be suitable for covering a specific amount of debt for a set period, such as an interest-only mortgage not covered by an endowment policy.
Decreasing-term life insurance policies
In a decreasing-term policy, the coverage amount diminishes over the policy’s term. These policies are frequently used to cover debts that decrease over time, like a repayment mortgage.
Premiums are generally more affordable than level-term coverage since the insured amount reduces over time. Decreasing-term assurance policies can also be applied for Inheritance Tax planning purposes.
Family income benefit policies
Family income benefit life assurance is a variant of decreasing term policy. Rather than providing a lump sum, it offers your beneficiaries a consistent income until the policy expires if you pass away.
You can arrange for an amount equal to your net income to be disbursed to your family in the event of your death.
Increasing-term insurance policies
The premiums and coverage will rise during the policy’s term. This can be used to keep pace with inflation or cover a growing debt. You might choose increasing-term insurance to safeguard your policy’s value against inflation (the escalating cost of living) – whether for debt repayment or a significant purchase.