Term assurance is the cheapest and easiest to understand form of life insurance. Put simply, you insure yourself for a set period of time, for example until a loan is paid off. A term assurance policy will pay out if you die within this set period of time. If you do not die in this time, it does not pay out.
A term assurance policy will either be level or decreasing.
A level policy means that throught the time of the policy, the sum assured remains the same. In essence, you would get the same payout if you died on the first day of the policy as you would if you died on the last day.
A decreasing policy means that as you approach the end of the term of the policy, the sum paid out will be less than at the start of the policy.
Term assurance policies will pay out in one of two ways. Some will pay out a tax-free lump sum on death, others will pay a tax-free income up until the end of the term period. The latter are known as family income benefit policies. Naturally, there are pros and cons for both types of paying out. A lump sum policy can be more flexible as it allows a mixture of lump sum and income payments upon death of the policyholder. Family income policies are often cheaper due to the fact that liability is always decreasing for the insurer. Put simply, if you die in the 19th year of a 20 year policy, the insurers would only have to pay income for 1 year compared to many more years if you died earlier on in the term. It is also much simpler to work out the level of cover you would need as all you need do is work out the income you would need to replace
A term assurance policy will either be level or decreasing.
A level policy means that throught the time of the policy, the sum assured remains the same. In essence, you would get the same payout if you died on the first day of the policy as you would if you died on the last day.
A decreasing policy means that as you approach the end of the term of the policy, the sum paid out will be less than at the start of the policy.
Term assurance policies will pay out in one of two ways. Some will pay out a tax-free lump sum on death, others will pay a tax-free income up until the end of the term period. The latter are known as family income benefit policies. Naturally, there are pros and cons for both types of paying out. A lump sum policy can be more flexible as it allows a mixture of lump sum and income payments upon death of the policyholder. Family income policies are often cheaper due to the fact that liability is always decreasing for the insurer. Put simply, if you die in the 19th year of a 20 year policy, the insurers would only have to pay income for 1 year compared to many more years if you died earlier on in the term. It is also much simpler to work out the level of cover you would need as all you need do is work out the income you would need to replace
Term Assurance
