Life insurance plans : Term Life

Simple term assurance is often best for most people

The simplest and often cheapest form of life cover, so called because it is taken out for a fixed term, perhaps 15 or 20 years, or even 50. If you die during that term, it pays out a tax-free lump sum to your dependents.

If you stop paying for the policy, or you are still alive at the end of the term, you get nothing back.

There is no cash-in value, which is why it is the cheapest form of life cover.

Premiums have been falling in recent years, so it is quite possible to lower the cost of your current policies by replacing them with new policies at the lower rates. However, under no circumstances should you cancel an existing policy until you have written confirmation that your new policy is in force.

This type of policy is commonly bought to provide insurance to cover a debt such as a mortgage or to provide protection for a dependant family.

Term life insurance is usually cheap and very straightforward to arrange, as the insurer knows that the policy may never have to pay out. If you don’t die within the term, there is no payout.

You can alter your term assurance cover if your circumstances change in a way you cannot alter a whole of life policy.

The only people for whom whole of life usually makes sense is older people whose assets are likely to bear inheritance tax on their death, and who want to create lump sums outside their taxable estates for their children and grandchildren.

When it comes to straightforward insurance, you should aim to pay the lowest premiums possible, for the cover you need, for the time you need it. A Whole of Life policy will not be cheap, regardless of your age or health, and life insurance into retirement is a luxury many of us don’t need to spend our money on. The extra in premium could be better spent on critical illness cover or income protection, or added to your long-term savings plans.

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