Term Life Insurance

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Term Life Insurance

Tom Fisher joins us to talk about term life insurance.

What is term life insurance and how does it work?

Term life insurance is the simplest form of life insurance. You pay a premium for a set amount of time, and if you die during that period, a cash benefit is paid to your family. That might be in line with a mortgage or to leave some money behind to family members named as a beneficiary on the policy.

Which one is better, term or whole life insurance? Are term plans worth it?

If you only need a life insurance policy for a certain amount of time, such as while your children are growing up or in line with a mortgage, term insurance may suit you better – as the premiums are more affordable. 

If you need permanent coverage to last your entire life, possibly to cover funeral costs etc, then whole life is likely to be your preferred option.

What are the different types of term life insurance policies?

There are three types: level term, increasing and decreasing. With level term, the sum paid out will stay the same throughout the policy. An increasing term takes changes to inflation into account, meaning that the covered amount rises alongside inflation. 

The final option is for the covered amount to decrease over the term, which usually runs in line with a repayment mortgage where the amount you owe reduces over time.

Do you get your money back at the end of the term life insurance?

I’m afraid not. There’s no cash-in value. At the end of your life insurance policy, or if you stop making the payments or the coverage ends, you wouldn’t get anything back.

At what age does term life insurance end?

So the term of the policy will depend on your circumstances and whether it’s to cover the mortgage or support your children while they’re dependent on you. The maximum age you can cover yourself up to is 90. 

However, some people would like to cover their kids until they’re financially independent, perhaps at the age of 25. Other people align their life insurance with their mortgage. 

You’re not tied into the policy, so if you are fortunate enough to pay off your mortgage sooner than expected, you will be able to cancel the policy straight away.

What happens at the end of a term life insurance policy?

If you outlive the policy, it will end and you’ll get nothing back. You would need to make another application if you’d still like to be insured. 

The way I look at it is that if you do outlive it that’s a big benefit in itself: you’re still alive and kicking. Claiming on the policy is always done by a family member – because unfortunately you’d have passed away.

How much does term life insurance cost?

There’s no specific cost because there are key factors that really affect the premium – particularly the amount you’re covered for and the length of time the policy will run. 

The longer you are covered for, the higher the premium. Things like age, height and weight, medical history and also smoking status also has a big effect on the monthly premium.

What are the pros and cons of term life insurance?

Starting off with the pros, term life insurance is ideal for those who cannot afford permanent life cover. Opting for level cover allows you to lock in cheap premium rates, saving you money over time. It does offer flexibility. You can choose how long your policy lasts for as well as the payout value of the policy itself. 

If you’re looking to cover a mortgage, you can choose a policy that lasts until your mortgage has been paid off. It also can cover a range of other finances – to help your family with future costs such as mortgage repayments, household bills, clearing debts, living expenses, helping with funeral costs and, lastly, leaving a legacy to loved ones. 

In terms of the disadvantages, term life insurance only provides temporary cover – it only lasts for a set period of time. If you’re looking for permanent cover that will definitely pay out in the end, you should also look into whole life insurance. Although this type of policy is a bit more expensive, it does protect you for the rest of your life.

Term life insurance will only pay out if you pass away within the term of the policy. If not, the policy expires and you’ll have to take out an additional cover.

How can I get term life insurance?

You can go directly to providers, but it tends to be more expensive than going to a broker. Providers pay brokers to sell the policies, so they do get preferential rates. A mortgage broker definitely can help you, although they tend to be solely tied to a few providers across the UK market. 

Meanwhile if you were to go to a standard broker, they do cover the whole UK market. So it tends to be more cost effective going to a broker rather than a mortgage broker.