What is Term Assurance?

The insurance industry is full of jargon, so the following are some commonly used terms to describe the types of Life cover that are available as term assurance or term insurance products.

Whilst the Financial Services Authority (FSA) distinguish the various Life assurance products available as Life insurance or Pure Protection policies the definitions used here are as those determined by the CII (Chartered Insurance Institute).

Generally Term assurance is a way of mitigating or reducing the financial effects of a terminal life event relating to your, your partner’s or family’s life. 

Death is a terminal life event covered by Term Assurance policies such as level term assurance, renewable term assurance, convertible term assurance, decreasing term assurance, increasing term assurance, unit linked term assurance and family income benefit policies.

An adverse life event covered by Health Insurance is typically accident and sickness, critical illness or terminal illness.

Depending on the type of term assurance policy taken out by you or on your behalf, a payment will be made either as a lump sum or regular payments to the beneficiaries of the policy in the event of a claim being made on your death.

 

What are the types of Term Assurance?

The following are the types of term assurance available:-

  • Level Term Assurance pays out a lump sum to your beneficiaries on your death within the stated term of the policy.
  • Renewable Term Assurance is as the name implies renewed on the expiry date of the term. No further evidence of health is required, but on renewal premiums paid will increase due to the assured being older. It will pay out a lump sum to your beneficiaries on your death within the revised term of the policy.
  • Convertible Term Assurance is a level term assurance with the option of converting to a Whole of Life or Endowment Assurance policy. On converting, premiums paid by the assured will be as for the Whole of Life or Endowment policy.
  • Decreasing Term Assurance pays out to your beneficiaries a lump sum which will have reduced each year or month up until your death within the stated term of the policy.
  • Increasing Term Assurance pays out a lump sum which has increased in line with an indexation factor such as Retail Price Index (RPI) or set percentage per year to your beneficiaries on your death within the stated term of the policy.
  • Unit Linked Term Assurance pays out a lump sum to your beneficiaries on your death within the stated term of the policy. Life cover is paid for by cancellation of units purchased within an investment fund by the monthly premiums. If the units underperform the premiums will have to be increased or the sum assured reduced. If the units overperform there will be cash value available to the policyholder on survival at the end of the term.   
  • Family Income Benefit policies pays out a regular income to your beneficiaries on your death within the stated term of the policy

 

Why should I take out Term Assurance?

There are a number of factors about an individual’s personal circumstances that will determine which of the types of term assurance that may be applicable are based on their suitability and affordability.

For instance, if you are married and have dependants and have a Capital and Interest (Repayment) mortgage then a Decreasing Term Assurance policy may be the most suitable for your needs. However, Term Assurance is about providing financial protection for your dependants and there will be many circumstances where some form of life assurance that provides a lump sum in addition to repayment of a mortgage should be considered.

 

How should I take out Term Assurance policy?

The first and most important step after you have decided you may have a need for life assurance cover is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of life cover is for your particular circumstances we make an application on your behalf to take out a protection policy based on how much you can afford and the amount of cover required, for a length of time to match your needs.

 

How do I pay for Term Assurance?

Once the amount of benefit you require has been determined your monthly payment or premium for protection under the policy or cover will be offered to you by the insurer’s underwriter after they have reviewed a completed personal questionnaire relating to your occupation and lifestyle including in some cases a medical report.

The premiums may be guaranteed where the monthly payment and benefit is level, i.e. it does not change for the term of the policy, or may be reviewable every one, three, five or ten years depending on the insurance provider i.e. the insurance company underwriting the policy.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles by accessing Directgov at the following website  http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/Insurance/index.htm?cids=Google_PPC&cre=Money

and the Financial Service Authority (FSA) consumer guide available on their website at http://www.moneymadeclear.fsa.gov.uk/print.aspx?Page=/products/insurance/types/income/life_insurance