Is Term Coverage the Best Life Insurance Choice for Your Family? – Forbes Advisor UK


Term insurance is a type of life insurance policy that provides coverage for a fixed term – known as a “term”.

Policies typically last between five and 25 years, but can be longer. The longer the policy term, the more protection you will have, but the higher your premiums will be. This is because the likelihood of death increases with age, which makes it more likely that there will be a claim on the policy.

Life insurance that lasts until your death at any time is called “lifetime” coverage. It is even more expensive since a claim will inevitably be made at some point.

Term insurance is designed to provide financial protection in the event of premature death. Whole life insurance is generally used for estate planning purposes.

What does term life insurance cover?

Term life insurance will pay a tax-free lump sum to your dependents (or beneficiaries) if you die during the period. Your beneficiaries will then be able to use these funds as they see fit, whether for:

  • pay off the mortgage
  • erase debts such as credit cards and loans
  • pay household bills or other living expenses
  • pay for child care and other services
  • save / invest for the future.

Who is term life insurance for?

Life insurance is an important consideration if you have children or others who depend on you financially. It offers the peace of mind that should the worst happen, your dependents will be funded and able to meet daily bills and other expenses.

Even if you are a stay-at-home parent, you should still be thinking about life insurance. A payment could help ensure that those who remain could afford to make childcare arrangements, for example.

Since term life insurance offers coverage for a fixed period, it may be suitable for those who want to cover a large loan such as a mortgage or provide protection until their children have grown up and left the home. House.

What types of temporary coverage are there?

There are three main types of term life insurance:

Level term insurance

With level term insurance, the payment, or “sum insured”, remains the same regardless of when the claim is made (although it must be within the specified time frame). This means that you will know exactly how much your beneficiaries will receive. Your premiums will also remain the same.

Decreasing term insurance

With decreasing term insurance, the payment decreases over the life of the policy. This can be a good option if you have a large debt to repay, such as a mortgage with repayment of principal and interest (as opposed to interest only), as the repayment decreases by the amount needed to pay off the debt. For this reason, it is cheaper than level term insurance, but note that your premiums will not go down over the term, they will stay the same.

Increase in term insurance

With the increase in term insurance, the payment amount increases over time, so the later a claim is made, the larger the payment will be. The idea is to protect the value of your policy against inflation so that as the cost of goods and daily living increases, the amount of coverage also increases.

The amount of coverage can be increased based on the retail price index (RPI) measure of inflation or by a fixed amount each year. However, this also means that your premiums will increase over time, making it the most expensive of the three options.

What type of term insurance is right for me?

When deciding which type of term life insurance is best for you, you need to consider your circumstances. If your main goal is to make sure your family can pay off the mortgage if you are no longer there, reduced term insurance may be sufficient.

On the other hand, if you prefer your family to receive a fixed lump sum if they were to make a claim, level term insurance might be more appropriate, while if you are concerned about the effects of inflation on your policy, you may prefer to increase long-term coverage.

Coverage for couples: joint or 2 x single?

When a couple purchases term insurance to protect each other and their children, they can purchase a joint life insurance policy that covers them both, or they can purchase two individual life insurance policies (usually underwritten by the intermediary of the same insurance company with a single combined premium).

A joint life insurance policy is cheaper, but that’s because it only pays once, on the first death. It also means that the surviving partner no longer has life coverage and would face higher premiums (due to their higher age) if they bought a new policy at that time.

With individual life insurance policies, the premiums are higher but the protection is more extensive. If either partner dies during the term, payment should be made and the surviving partner still has insurance in place to protect their dependents.

How long should the mandate be?

The length of time you choose will also depend on why you need the coverage. If your primary concern is making sure the mortgage can be paid off, it may be best to choose a term at least as long as the remaining term of your mortgage. So if your mortgage lasts 25 years, you could choose a 25 year term life insurance policy.

Alternatively, you might only want coverage until your kids are old enough to be financially independent, or you might prefer to have coverage that lasts until you retire. Keep in mind that after the term of your life insurance policy ends, you will no longer have coverage and your loved ones will not receive a payment if and when you die.

How much does term life insurance cost?

The cost of life insurance can start from £ 5 per month, but how much you pay will depend on a range of factors, including:

  • your age
  • your health and that of your loved ones through blood
  • that you smoke
  • your occupation
  • the duration of your policy
  • the amount of coverage you choose.

Keep in mind that the older you are, the higher your premiums will be because, in the eyes of insurers, you will be more at risk of making a claim. It may therefore pay off to purchase insurance while you are young.

Likewise, if you have any health concerns or are a heavy smoker, your premiums will likely be higher.

What is renewable term life insurance?

The older you are when you buy life insurance, the more likely you are to have health problems and the more expensive your coverage will be. This means that if your coverage ends and you want to buy a new policy, you could end up paying a lot more.

Some insurers therefore offer renewable fixed-term contracts that allow you to renew or extend your coverage without an updated health check. So you could, for example, take out a contract for a period of 15 years and at the end of this period, renew your coverage at the same level.

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