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Term assurance
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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.
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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.
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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.
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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.
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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.
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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.
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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.
Types of term assurance
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Term assurance policies run for a set number of years, or ‘term’. They’re a kind of protection insurance, paid to your family or financial dependents if you die during the term.
You can have a term assurance policy for your own life, jointly with a partner or on the life of someone else with whom you share a financial interest, like a spouse or business partner. -
Individual policies only pay out if the holder dies within the term. If you survive past that term, your family or dependents won’t receive anything. Joint policies pay out in full and then finish when the first of the two policyholders dies. Joint life policies cover two people, but only pay out once. Usually, this is a lump sum payment to the survivor after the first person dies within the term of a policy. When the policy ends, there's no further life cover for the survivor.
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If you already hold a policy, you’ll probably find that the premiums haven’t changed since it began. That’s because premiums usually stay the same for the full term of the policy.
In some cases they might be reviewed every five years or so to make sure they still offer the cover you need. When that happens, the premiums can go up or down, but you’ll always be told if they need to change.
The premium you pay will depend on your age and health, as well as the amount of cover you want and the length of the term. Premiums will be higher if you’re older, in poor health or have habits — smoking, for example — that could increase the risk that you’ll die within the term. -
You’ll normally pay premiums every 30 days. If you miss a payment, your policy will usually end, leaving you without cover. Don’t worry if that happens accidentally, you can usually re-start your policy if you act within 13 months.
You’ll have to catch up on missed premiums, and you’ll probably also have to provide a new medical underwriting assessment of your health. It’s important to remember that policies can’t be restarted if you leave them unpaid for more than 13 months. -
Your policy only pays out if you or your joint policyholder dies. You can’t surrender or cash it in if you change your mind. If you haven’t already started a term assurance policy, we recommend that you take financial advice to make sure it’s right for you.
What does term assurance mean?
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Adding critical illness cover to your term assurance policy protects your income if you become too ill to work. It applies to specific illnesses and only pays out if you’re diagnosed during the term of your policy.
In some cases, cover also provides for children up to the age of 18, or up to 21 if they’re in full-time education.What illnesses are covered?
It depends on your policy and policy provider, so make sure critical illness cover offers the benefits you want. If you’re diagnosed with an illness that isn’t included, you won’t get anything. Speak with your policy provider if there’s anything you’re not sure about.
These are some of the illnesses most often covered – but remember they might not all apply. Some types of illness, like cancer or stroke, may not be covered at all:- Alzheimer's disease
- Aorta graft surgery
- Aplastic anaemia
- Bacterial meningitis
- Benign brain tumour
- Blindness
- Cancer
- Cardiomyopathy
- Coma
- Coronary artery by-pass surgery
- Creutzfeldt-Jakob disease (CJD)
- Deafness
- Dementia
- Encephalitis
- Heart attack
- Heart valve replacement or repair
- Kidney failure
- Liver failure
- Loss of hand or foot
- Loss of speech
- Major organ transplant
- Motor neurone disease
- Multiple sclerosis
- Multiple system atrophy
- Open heart surgery
- Paralysis of a limb
- Parkinson’s disease
- Primary pulmonary hypertension
- Progressive supranuclear palsy
- Removal of an eyeball
- Respiratory failure
- Stroke
- Systemic lupus erythematosus
- Third degree burns
- Total and Permanent Disability
- Traumatic head injury
What’s not covered?
Critical illness cover usually has some conditions that aren’t covered. They’ll vary between policies, and you’ll find them listed in the terms and conditions. The most common ones are linked to:
- Aviation
- Criminal acts
- Drug abuse
- Failure to follow medical advice
- Hazardous sports and pastimes
- HIV/AIDS
- Living abroad
- Self-inflicted injury
- War and civil commotion
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If you’re sick or injured and unable to work, this benefit lets you temporarily stop paying premiums. In most cases, you’ll have to keep paying for a time, called a ‘waiting’ or ‘deferred’ period. You’ll have to start paying premiums again when one of these applies:
- you recover
- your policy benefits become payable
- the waiver of premium benefit finishes
- you reach a specified age
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This is similar to critical illness cover — it provides you with an income if you’re unable to work. It pays out if you become totally and permanently disabled. Most options will feature a deferred period before any benefits are paid out.
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This gives you a guarantee that you can, within certain circumstances, increase the amount of cover your term policy provides without providing any more medical evidence. It might also include what’s called ‘continuation options’, which let you extend the term covered. You need to be aware that there will be limits in place and check with your provider whether this option is available to or suitable for you.
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This is a way to protect the value of your term assurance policy from the effects of inflation. It increases premiums and life cover in line with a cost of living index like the Retail Prices Index (RPI) or Consumer Prices Index (CPI).
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Some policies may pay out if you are diagnosed with a terminal illness during the term, and you are given less than 12 months to live.
Add-on benefits
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Finding out more
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With-profits
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Unit-linked
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