What is a term life insurance policy?
Term life insurance is one of the most common forms of life insurance in the UK. Policies will generally combine a sizeable cash payout should the insured pass away within the term. The insured pays fixed monthly premiums for the length of the policy. The majority of policies last between ten and 30 years, allowing steady premiums for a lengthy period.
These policies are generally at a cheaper rate than whole life insurance plans because of their shorter nature. The amount paid out upon the insured’s death is fixed, meaning no change in the value of the policy – this makes them largely unsuitable for those seeking to use them to cover anything other than lost income. If you’re looking for this type of life insurance, there are a few options to choose from.
The most affordable form of term life insurance is an ART policy, or Annual Renewable Term. This is one of the best short-term options, though you will be hit with higher premiums as you get older.
The monthly premiums you pay will remain the same throughout the duration of the one-year policy, and you must renew after each 12 months to remain insured, at which time your premiums will typically rise.
You need to be particularly careful when choosing to go down the ART route, and make sure that your policy includes a guaranteed re-insurability clause. This means that if you develop an illness while holding the policy, the insurer cannot deny you another 12-month term, although your premiums may be considerably higher.
With a level term policy, you are guaranteed cover for a set period, generally between ten and 30 years, with fixed premiums and a large fixed payout. The premiums are likely to be higher than with an ART policy, depending on your age, as the risk to the insurer is significantly higher, especially as premiums cannot rise to take into account the development of a severe illness.
You should generally seek a level term life insurance quote if you have a number of dependents that solely or largely rely on your income, as this will provide you with cover until you retire, allowing your family to cover any debts or liabilities you may have built up during your working life.
DTI Insurance, or Decreasing Term Insurance, is a more unusual UK policy. It is mainly aimed at those looking to take out a basic level of cover to provide relatives with enough money to cover any costs the holder’s death incurs, most notably small loans or mortgages.
These are among the most affordable life assurance policies around. Premiums remain fixed whilst the amount payable upon the holder’s death will gradually decrease throughout the term. The idea behind them is that the holder’s overall debts will decrease in line with the value of the policy. DTI cover may be suitable if your insurance needs are met with a short term and more affordable cover option.