Understanding term life insurance
Life insurance is bit of a strange product in the insurance world. Usually when you buy insurance, the thing that you’re protecting yourself against is pretty unlikely to happen – a car accident, maybe, or a break-in at home. But with life cover you’re buying peace of mind for the future.
While money can never replace a loved one, it can help to relieve financial burdens at a difficult time. If you pass away with a joint life insurance policy in place, it means your partner will get a sum of money to take care of the bills. One of the reasons people buy life insurance is to pay off the mortgage, so their family wouldn’t have to worry about paying for their home when they’re no longer around to help contribute to the bills.
The cash could also be used to pay funeral costs, repay debts or support your family in some other way.
Yes, but what’s this ‘term’ business?
First, there are two kinds of cover: life insurance and life assurance. Life insurance covers you for a set amount of time while life assurance continues indefinitely until you pass away. Usually, an insurance policy is for a fixed amount of time, say 10, 20 or 25 years. This is the ‘term’ bit – how long the policy lasts for.
There is also such a thing as a ‘whole of life’ product. This is called life assurance, or funeral expenses cover. An assurance policy will definitely pay out one day. Often these products involve an investment approach, so they are more complex products. You may need to speak to a financial provider to buy one of these.
The advantage of setting a time limit (term) on life insurance is that it often makes it a bit less expensive. That’s because you may not pass away during the policy term.
The possible down side is that you’d need to buy another policy when it runs out, and you’ll be older and possibly have more health issues. These things can make a policy more expensive.
Level-term insurance and decreasing term life insurance
If you decide you want term insurance, there are two kinds to choose from, level-term life insurance or decreasing term.
Level-term life insurance will give you the same amount of cover at all times throughout the life of the policy. So if you pass away while the policy’s in place, your family could receive a set amount, say £25,000, depending on what you’ve set it up to be.
But with decreasing term life insurance, the pay-out becomes lower as time goes on. The idea behind this is that you’d need less money as the years pass – maybe because you’ve paid more of your mortgage off. So if you passed away in the first year of the policy the sum might be £150,000, but in year nine of a 10 year policy, this might drop to something around £20,000. Decreasing term cover is usually cheaper than level-term but it’s important to review your needs carefully and choose the right policy for you.
How do I decide what I need?
It’s a pretty personal choice and depends on what you can afford to pay, balanced against what your family would need should the worst happen. A good place to start is to do a life insurance comparison on a site like this: just click above.
First you’ll need to decide whether you want to look at single cover or joint life insurance. With joint cover you may pay a little more, but you’d get a pay-out should one of you pass away. Once the policy has paid out it will end and you may need to think about taking out a new policy.
Next you need to set a time limit on the cover – so put in the number of years you want it to last. Maybe this will match up with the time left on your mortgage, or when you think your children might be independent and no longer need your financial support.
Then you just need to tell us whether you’ve smoked or used anything containing nicotine in the last 12 months. Insurers charge more for a smoker’s policy because of the health risks.
Next you’ll see a page with all the term insurance quotes from the providers that can cover you, listed in price order with the cheapest life insurance at the top.
We make it easy to compare – we’ll tell you whether you can buy the policy online, how quick the process is and also if you’ll be covered while you’re in the process of setting up the insurance.
You can also look at how your quotes change by altering how long the policy will last and how much your family may stand to receive.
As you look at the different offers on our quote page, make sure you consider more than just the price. The cheapest option is not necessarily the best life insurance. To buy your policy, just click on the button to go to the insurer. But if you have any questions you can also call and talk to one of the LifeSearch experts on the number shown above.
While these things really aren’t nice to think about, one day, you or your family could be glad you did.