Sunday Independant Financial Advisors Ltd

Types of Term Life Assurance

Life insurance (also known as 'life assurance' ) is a policy that pays out a lump sum in the event of the policyholder's death, with the purpose of protecting loved ones and dependents against financial hardship. It is usually available on a single or joint life basis with benefits including paying out on the diagnosis of a terminal illness. If the policyholder is alive when the policy expires no payment is made and, should the policyholder stops paying premiums at any stage, the policy has no value.

There are several types of life insurance:

Level term insurance - designed to pay out a sum of money if the policyholder should die during the policy's term. The sum assured is guaranteed and remains unchanged throughout the term.
Decreasing term life insurance i.e. mortgage protection cover - where the sum decreases during the policy. It is regularly used to protect capital and interest repayments on a mortgage.
Renewable term insurance - On the expiry date there is an option to continue without a health review.
Convertible term insurance - Level term insurance with the option to revert to whole life or endowment insurance.
Increasing term insurance - Due to inflation the value of money declines each year. Consequently, this form of insurance combats that with an escalating sum assured.
Index linked term insurance - Some insurers provide the option for the premium to be increased each year in relation to the Retail Price Index.

Family income benefit
This means that the payment on your death will be given to your family, normally in regular payments rather than as a lump sum. The term is chosen at the outset of the policy.

The policies can be written with guaranteed remiums - The life insurance company guarantees to never increase your policy premium, or reviewable premiums - You agree that the company can review your policy at set intervals. This can be the cheaper option at the outset but not necessarily the best in the long term.

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Whole of Life and Endowment Policies

A Whole of Life policy guarantees the payout of a lump sum when the policyholder dies, at whatever time that may be as long as payments are maintained. In most cases the premiums and sum insured are guaranteed not to increase for the first ten years. However, they are more expensive as a claim is assured. These come in various forms:

Non-profit whole life policies - A level premium payable throughout life. It pays a fixed cash sum at the time of death.
With profit whole life policies - Same as non-profit policies but the amount paid on death is the sum assured plus whatever profits have been allocated.
Low cost whole life policies - These have a guaranteed level of cover that the amount payable on death is greater than the basic sum plus bonuses or the guaranteed death sum assured.

Endowment life insurance policie are the equivalent of saving schemes with life insurance attached. They are often carried with mortgages and will pay out any returns at the end of the policy term or a lump sum when the policyholder dies.

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