Term Assurance

Term insurance (or temporary insurance) is the simplest form of insurance, and pays out a lump sum if you die during the term of the policy. The term might be 10, 15 or 20 years, although you can arrange policies to cover you for periods as short as one month. If you are alive at the end of the term, no payment is made and there is no surrender value. This means that if you stop paying the premiums the cover ceases, and there is no refund of premiums paid. Cover can usually be arranged to protect just one person, but in some cases can also be available for spouses or partners in the same policy.

There are a number of different policies within term assurance:

1. Level Term Assurance

Fixed premiums for a fixed number of years and a full payout on claim at any point. The amount of life cover remains the same throughout the term of the policy. This is usually the best choice for family protection and interest-only mortgages. However, the level of cover should be reviewed whenever your personal circumstances change to ensure your protection is still adequate.

2. Decreasing Term Assurance

You pay a fixed monthly premium over a fixed term but, instead of the cover remaining level, it gradually reduces to nil over the term of the policy. This makes it ideal for paying off or reducing debts which decrease over a period of time, such as a repayment mortgage. The reducing cover means that the cost of this type of policy is lower than that of Level Term Assurance.

3. Renewable Term Assurance

You have the option, after a specified period (usually 5 years) to take out a further term policy without the need for any further evidence of health, providing the policy will not continue beyond a certain age (often 65 or more).

4. Convertible Term Assurance

At the end of the policy, you have the option to convert to a whole-of-life policy or an Endowment Assurance, without having to provide revised details about your state of health. This type of policy will require you to pay slightly higher premiums than an equivalent level Term Assurance policy, but may be useful if you believe your health may deteriorate over a period of time.