What is Term Life Insurance?
Term Life Insurance provides a lump-sum payment in the event of death or pays up to 100% of the term life insurance benefit if a life assured is diagnosed as being terminally ill and unlikely to survive for 12 months.
Term Life Insurance is an essential foundation when planning a risk protection programme for anyone with a partner or family.
The words ‘term life insurance’ imply that the period of insurance is finite and this is generally the case. Most term life insurance policies cease at age 100, however more often than not the cost for cover becomes prohibitive many years before this.
Term Life Premiums
Premiums for term life insurance can be calculated in several ways. The most common is a ‘rate for age’ policy whereby your premium increases each year as you get older. The other options are various ‘level’ premium policies (most commonly level for 10 years, level to age 65 or level to age 80). With a ‘level’ premium policy the cost of insurance is the same over the lifetime of the policy (either 10 years, or until you reach age 65 or 80 – depending on which time-frame you choose).
The good thing about ‘level’ policies is that they provide a certain and predictable cost for the period of the contact and often mean that cover can be kept in place as you age rather than becoming too expensive. On the other side of the coin ‘level’ policies start out costing more and this cost also needs to be taken into consideration, for some people the extra cost would be better off put towards reducing debt or adding to their retirement savings.
In summary everyone’s needs are different and there is no certain way to advise which option will suit you best. Often we recommend a combination of both ‘rate for age’ and ‘level’ term life insurance policies – the ‘rate for age’ policy to take care of short to medium term requirements such as debt and covering the cost of raising a family, balanced with a portion of ‘level’ cover that provides long term peace of mind for partners and spouses as the person insured ages.
Other Benefits of Term Life
Many term life insurance policies also have additional benefits built into them which take into account your future needs. For example a ‘special events’ benefit which allows you to increase the amount of cover you have without the need for an application form under certain circumstances (having a child, getting married – or divorced or buying a new house) – each insurance company has different policy wordings in this area.
We recommend consulting a specialist insurance adviser who can help you decide which policy will best suit your needs. You will still have to pay for the cost of the extra insurance but you will not be medically underwritten for it. For those who have had a change in health since they took out their initial policy this can be extremely beneficial.
