Term Life Insurance, as the name suggests, is a life cover policy that covers the insured for a specific period of time. The client is insured for a lump sum value, for example £100,000 for 20 years. This sum will be paid out if the client passes away during the term, in this case 20 years ftom the start of the policy. There maybe some exclusions in the policy. It is commonly used to cover a large debt for example a mortgage. Different types of term assurance include :
- Decreasing : The level of cover decreases over time (e.g. for a repayment mortgage)
- Increasing : A policy may increase by the rate of inflation, to keep its value in real terms
- Accelerator : A policy starts at a low price, but increases during the term, however cover remains the same.
Whole of Life Insurance
Whole of life cover is similar to an investment, the policy does not have an end date and is guarenteed to pay out an amount at some stage. As a payout is guarenteed, whole of life cover is more expensive than term assurance (which may not pay out). Clients often use this for costs such as inheritance tax.
Family Income Policy
Similar to term assurance, the client is covered for a set amount for a fixed period. However, instead of paying out a lump sum, the policy pays a regular income to the beneficiary, this can be useful to allow for financial planning, and is used to cover living costs as it is designed to replace an income, not to clear debts.