Term Insurance is the cheapest form of life cover. It is attractive to those who want protection for a fixed number of years, for example when the children are young or to cover a mortgage, and is not designed as a means of saving. It simply is protection for your dependants in case you die early. There are types to suit different circumstances:
- Level Term - the sum insured stays the same throughout the term.
- Increasing Term- the sum insured and the premium increase by a fixed percentage or amount each year to take account of inflation or your increasing earnings as examples.
- Decreasing Term - the sum insured decreases by a fixed amount each year but normally the premium remains the same. This type is usually purchased to cover a mortgage or loan that is repaid in instalments over an agreed term.
- Family Income Benefit - a regular income is paid out upon your death for the rest of the agreed term. The income can be at a constant level, increasing or decreasing.
- Renewable Term - you have the option to "renew" or take out a further term policy at a specific period (usually 5 years) without another medical check up, so long as the maturity does not go beyond a certain age.
- Convertible Term - you have the option to convert to a Whole Life or an Endowment policy at a specific period without another medical check up. The premium will increase to the level of the Whole Life or Endowment policy. This is designed to provide you with cheap life cover in the early years and allows you to convert to other types as your earnings increase.
Plus Points: Simplest form of life insurance and the cheapest. You can cancel at any time by stopping the premiums. The different variations provide you with a good degree of flexibility.
Points to Watch: Premiums can vary significantly between providers. Be sure to obtain several quotes and compare their terms. Some policies contain significant optional extensions such as Waiver of Premium (if you are ill or injured, the provider will waive premiums) or Critical Illness (if you suffer a serious illness such as cancer or a heart attack, a lump sum or an income is paid out). Just like with some other forms of insurance (e g car and home), you must keep up your premium instalments. Failure to do so will result in the policy becoming void. If you cancel the policy or stop payments no sum is payable back to you.
For peace of mind, choose providers with a sound market reputation.
General
Term
Whole Life
Endowment
Insurance Linked Savings
