Life insurance – deciding on the term of a policy

Choosing a life insurance policy that works for you can be quite easy once you’ve mastered the different types of life cover that are called ‘term’. 

Choosing a life insurance policy that works for you can be quite easy once you’ve mastered the different types of life cover that are called ‘term’. 

Debbie Thompson
Life insurance expert
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Posted 4 DECEMBER 2019

What is term life insurance?

Term life insurance is a type of insurance cover that pays out if you die during the length of a policy. The two main types of term insurance are level term and decreasing term. Level term is when the cover amount stays the same throughout the life (or ‘term’) of a policy. For decreasing term, the cover reduces over time. 

What do I need to consider when choosing life insurance?

As with any life insurance policy, you should start by working out:

  • If you want cover that meets the needs of any children who are dependant on you until they’re aged at least 18  
  • Whether you need insurance until mortgage re-payments, loans or other debts have been paid
  • If there are other expenses, such as funeral costs or social care, that you’d like cover for

When it comes to the amount of cover you’d like to choose up front – you could start by completing our simple life insurance calculator. It can take just a few moments to find a level of cover that works for your circumstances. 

What’s the main difference between level term and decreasing term life insurance?

Often, you can expect to be offered a cheaper premium for a decreasing term policy than for level term. But the flip side is that your pay-out will be less each year the policy is active. As a decreasing term policy is a diminishing form of cover it’s often taken out alongside mortgages, with the pay-out covering your mortgage balance in-line with the monthly repayment agreement.

Taking out a life insurance policy until a debt ends

If you’re looking for a premium that will pay out to cover a loan or mortgage, then the sum insured for a decreasing term policy is likely to be the amount outstanding on the debt, and the term of the plan is likely to be the length of time the debt has to run. Ensure that your cover lasts right until the end of the term.  

This type of cover tends to be popular by people who have a capital repayment arrangement, where the capital balance reduces throughout the term. However if your loan or mortgage is an interest-only deal, and the capital amount repayable does not reduce over time, then it might be better to think about level term insurance.

Which other types of policy could I compare? 

If your need for life insurance will still be a factor in older age, you might want to consider a whole-of-life insurance policy. This type of cover could protect those you love most through a lump sum payment. However, before purchasing this form of insurance, you should pay attention to the total premium you you’ll end up paying. That’s because whole-of-life policies often require you to continue to make payments for the rest of your life, or at least until an advanced age – typically up to around 90. Be sure to read the terms and conditions of each policy with care, so that you’re clear on exactly what you are signing up for.  

Some people take out over 50s life insurance for funeral expenses. Bear in mind that these plans often have a maximum age for acceptance, which can be as high as 90. For your beneficiaries to be eligible for a pay-out, you may need to survive for two years after commencement of the policy.

Calculate the level of cover that works for you

There are many types of life insurance policies to consider. Some people add critical illness cover (or non-terminal illness insurance) as an add-on to their life insurance policy. This cover type can be useful if you’re diagnosed with an unexpected illness and can no longer pay bills as a result of not being able to work. This could also help to pay for things like your mortgage, household bills or even your children’s education that you’ve committed to.

Whatever the reason you are looking for life insurance, a good place to continue your research could be to complete our life insurance calculator. By doing so, you’ll be half way to getting a quote for life insurance which could get you peace of mind for you and your loved ones today.  

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