TERM-TIME

We saw in the last life insurance masterclass (see September archive) that there are three basic categories - term, whole life and endowment life insurance.

Term means simply that the life insurance cover lasts for a certain period (term) of time, often 25 years to coincide with a mortgage.

There are different types of term life insurance, explained below:

LEVEL TERM: You’re insured for the same amount for the agreed term.

RENEWABLE TERM: You get the option after a specified period (usually five years) to take out a further life insurance term policy without the need to provide more evidence of the state of your health, providing the policy does not continue beyond a set age (which is usually 65 or older).

CONVERTIBLE TERM: You can convert the life insurance policy to a whole life policy (see masterclass 4, September archive) or endowment life insurance policy (see masterclass 5, September archive) without the need to provide more evidence of the state of your health. These give you the choice of switching later when your circumstances might have changed and you need another sort of life insurance policy.

FAMILY INCOME BENEFIT: This life insurance policy will pay an income to your dependants for the length of the term you arranged cover for. Some policies raise the amount paid each month by a set percentage, say, 3% or 5%.

DECREASING TERM: The sum you are insured for decreases each year until it reaches zero. This type of life insurance is popular with mortgage holders and is often taken out for a 25-year term to cover the homeloan if you die during the term assured. At the end of the term nothing is payable and there is no surrender value on the policy.

INCREASING TERM: The sum insured and premium increase each year by a pre-agreed fixed proportion of the sum insured at the start. These life insurance policies up your protection as your earnings increase.

Now you’re on nodding terms with term insurance, go to masterclass 4 for the lowdown on whole life insurance.

For more details about life insurance, go to the Association of British Insurers on www.abi.org.uk

Trackback URI | Comments RSS