Term assurance

Level term assurance policies offer fixed premiums throughout the policy term, no matter how long that is. You can’t change the term once it’s been agreed. These policies are useful for providing security for your dependents up to a certain age. Level Term Assurance is taken out if you need a an amount of cover for a length of time, e.g. to cover a repayment mortgage, or to provide a lump sum for your family for a certain length of time, i.e. until children are no longer financially dependant.

Decreasing term policies can help pay off debt that reduces over time, such as a repayment mortgage. Life cover decreases over the term — your policy usually includes a table that shows how that works. Please remember that the amount paid out might not match your debt.

These policies can help keep up with inflation — increases in the cost of living over time. Premiums increase annually to offer more cover without additional medical evidence. Increases can be based on a fixed rate, e.g. 5% each year, or in line with an indexed rate like the Retail Prices Index, that is intended to protect the value against the effects of inflation.  

Convertible policies give you the flexibility to change your type of policy without answering more health questions, provided you change before the end of the term. You can switch to endowment or whole life policies with up to the same amount of cover, depending on the products your provider offers.

Renewable policies can help you budget. They offer lower premiums over a shorter time, for example one to three years. You can then extend the policy over another short term, and continue doing so up to a maximum age (typically 75). Premiums will increase with extensions as you get older.

These policies pay regular, tax-free income to your dependants, helping replace income lost when you die. They include guaranteed death benefit, which is the minimum amount to be paid.

Example:

• Your policy covers £10,000 a year over 25 years
• You die at the end of year 8
• Dependants receive £10,000 a year for 17 years

The amount of benefit usually stays level over the term, although in some policies it can increase in line with inflation.

The law around pension term assurance contracts has changed, so you won’t be able to begin a new contract or reinstate one that has lapsed. If you already hold one, you’ll have life cover alongside your pension arrangement, with premiums that qualify for the same income tax relief. The policy pays a cash lump sum to your estate, or to someone you’ve nominated.