Basic life insurance
Term Assurance explained
Term Assurance is considered to be the lowest priced form of life insurance. The amount of money insured for will only be paid out if the person insured dies within the specific term as set out. This means that if the person insured outlives the policy, the policy expires and there will be no money paid out.
Generally, should you need to make any alterations to your policy, this will be entirely at the discretion of the insurance company. Some policies may set out details of possible adjustments for certain scenarios, such as the policy holder having additional children.
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Whilst this type of policy may seem very basic, it does have certain advantages:
Cost
It is the cheapest insurance policy for protection. If you only have the need for a simple policy that will pay out on the death of the policy holder, then this offers great value for money.
Uses
This policy will allow you to insure for a fixed amount of your choosing, allowing you to cover a calculated figure to cover your liabilities in the event of death, such as debts and mortgage protection.
Companies can use this type of policy to insure key members of staff, where the business would suffer a great deal in the event of such a loss. The policy would give the business a cash injection, allowing the management a bit of breathing space to put covering measures in place which will allow the business to continue functioning as normal.
Term policies can also be increasing (i.e. in line with inflation), decreasing, renewable (in that at the end of the term you could keep it running) or convertible.
With this type of policy, there is no surrender value and cover will stop if you do not pay your premiums.
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Below is a list that covers the types of Term Assurance:
Level Term Assurance
A fixed amount is paid upon death of the policy holder through the policy term.
Decreasing Term Assurance
This type of policy is considered the lowest costing across the full term. The assured figure decreases each year, as does the premiums. This policy is particularly good for protecting your mortgage repayments. As the amount outstanding on your mortgage decreases, so does the insurance payments up until you hit zero.
Renewable Term Assurance
Much like convertible term assurance, only the option is to swap the original term assurance for another term assurance, at the end of the term. The biggest benefit here is guaranteed insurability. Convertible and Renewable Term Assurance are often combined into one policy.
Index-linked Term Assurance
This type of policy very often sees your premiums increase at a set amount. This Term Assurance is due to the value of the Sum Assured being linked to increases in an index, usually the RPI (Retail Prices Index).
Family Income Benefit
Family income benefit is a type of cover that pays regular instalments of capital for the balance of the term of the policy, upon the death of the life assured within the term. Its aim is to provide income for a family on the death of the main breadwinner. Some policies allow for the payment of a lump sum instead of an ongoing income payment.