Term Life Insurance
Are you considering purchasing a life insurance policy? If so, chances are good that you are looking into a term life insurance policy. Term insurance is the most popular type of life insurance in the UK. It is also usually the simplest and cheapest form.
Recently, prices have been decreasing for some life insurance policies. In some cases the price for life insurance has dropped as much as 40% over five years ago.(Nations Finance) Matt Morris of Lifesearch advises “If you can save money and still get the right type of cover for your circumstances, it makes sense to take advantage of the opportunity.” (Money Net)
What exactly is term life insurance?
Term insurance is a form of life insurance that is in effect for a specified length of time or “term”. This is why it is sometimes called “temporary insurance”. You can choose a term from 1 to 30 years, although 10 and 20 year terms are the most common. You also choose the amount of term insurance you need. You pay a monthly premium to the insurance company and if you should die within the preset term, the insurance company will pay the proceeds to your selected beneficiary. It is important to note that this only applies if you should die within the term period—if you should die even a day after the policy expires, your family will get nothing.
Is all term insurance the same?
No, there are several different types of term insurance.
“Level term insurance” is probably the most common. With level term insurance, you will always pay the same monthly premium amount; it will not change during the term of the policy. This can be helpful if you are budgeting your income carefully.
“Renewable” term insurance means you are eligible to renew the policy when it expires, generally without a medical exam being required. In most cases, when the policy is renewed your premiums will increase. There are also policies that are renewable annually.
“Convertible” term insurance policies give you the option of converting the term policy to a whole life or permanent policy, again generally at a higher rate. Most convertible policies do not require you to have a medical exam.
“Decreasing” term insurance is the type of life insurance most often used to cover a mortgage. The original amount of coverage decreases as you pay down the mortgage.
“Increasing” term insurance is generally used to combat inflation, so the payout amount rises over time.
“Family income benefit” is a form of term insurance that pays your family an income gradually instead of a lump sum if you die within the term period. You can select the income amount and whether it is paid annually, quarterly or monthly. It is important to note that the income is only paid until the end of the term period, so if you were to die one year before the end of the term, your family would receive one year’s worth of income. (Moneyextra)
How much term life insurance do I need?
This will depend upon your individual circumstances. You may already have some type of life insurance—perhaps your employer provides a basic Death in Service policy, or you have a mortgage protection policy.
If you are among the 1 in 3 UK adults with no form of life insurance,(Association of British Insurers) you may need to consider your obligations. If you have a spouse and a mortgage, you might want to think about an amount of 5-10 times your annual salary. If you have young children, this figure might rise to 10-15 times annual salary. (UK Netguide)
It is important to remember that the cost of term life insurance is partially based on your age and the earlier you take out a policy, the more reasonable it will be. James Harrison, CEO of Insurancewide notes “Life insurance is certainly not a top priority for most twenty-somethings, but when you stop and look at the cost you’ll see that it pays to start buying a policy as early as possible…” (London Stock Exchange)
How much does term insurance cost?
The cost varies with age, gender, occupation and general medical health. However, for example, a 35-year male nonsmoker can buy a 20 year term policy with a cover of ₤100,000 for:
₤7.55 a month from Marks and Spencer Money
₤7.95 a month from Lutine Assurance
₤7.99 a month from AA Insurance Services Ltd.
₤8.30 a month from Tesco Personal Finance. (Insurance Sorter)
Females can find the same term insurance for a slightly lower rate, as females are statistically longer-lived. A 35-year old female nonsmoker can choose from rates such as:
₤6.20 a month from Lutine Assurance
₤6.35 a month from Marks and Spencer Money
₤6.71 a month from AA Insurance
₤7.07 from Tesco Personal Finance.(Insurance Sorter)
So, no matter what your circumstances, chances are you will be able to find an affordable term life insurance policy.