Term Assurance
| Money : Back To Basics Term Assurance is the most basic form of life assurance available. It provides life cover for a person in return for a premium, which is usually paid monthly. The life cover (known as the sum assured) is only paid if the person covered dies during the term of the policy ? hence the name term assurance. This term usually coincides with the term of a mortgage or the length of time the person plans to keep working until retirement. People typically use term assurance to provide a sum assured that would pay off their entire mortgage if they died and enable their family to continue living in their home. It is also sometimes used for shareholder protection; to provide capital on death that a business can use to purchase shares from the estate of the deceased. It?s a cheap type of life assurance because it has no investment element. The entire premium is used to buy life cover. If you cancel the policy before the end of the term you don?t get any money back. Level or decreasing? There are two main types of term assurance to consider ? level or decreasing. Level term assurance has a sum assured that remains the same during the term of the life cover. This might be appropriate for covering a mortgage that is on an interest-only basis where the outstanding mortgage capital remains the same for the entire term. Decreasing term assurance has a sum assured that reduces in line with a reducing need for life cover. This is very often used to provide cover for a capital repayment mortgage, where the outstanding mortgage capital is reducing (being paid off) throughout the mortgage term. Decreasing term assurance is typically cheaper than level term assurance because it provides less of a benefit over time. It is possible to have term assurance on a single life or joint life basis. If you choose a joint life basis you can choose to have the life cover paid on either the death of the first life or the death of the second life. Once the sum assured has been paid out the policy is cancelled so sometimes people consider having two single life policies instead of one joint life first death policy. It is also possible to add on additional benefits to a term assurance policy. A common benefit is critical illness cover. This provides a sum assured in the event that the life assured of the policy contracts one of the specified critical illnesses during the policy term. There are different levels of critical illness cover available and they all cover different illnesses. If you are considering critical illness cover then it is worth doing your homework and ensuring the policy covers a wide enough range of conditions. The cost of term assurance will depend upon a number of factors including your age, health and smoker status. Non-smokers get much cheaper rates than smokers when getting new life assurance but the insurance company may want proof that you have been a non-smoker for at least the last year. They can now use a saliva test to see how honest you are being about your smoker status on your application form. A question of trust It is possibly, and usually advisable, to place a term assurance policy in trust. This is a simple legal document that ensures any benefits on death are paid out quickly, to the right person, and tax-efficiently. Life assurance policies set up without trusts can even inflate the value of the estate and increase a potential inheritance tax problem. You can place a life assurance policy in trust at either the time you set it up or after it has been running for a while. The life assurance company usually makes no charge for this facility, although there are a number of different types of trust available so you should seek advice about the most appropriate type for your situation and objectives. There are a number of places that you can buy term assurance, including your local supermarket. The decision about the best term assurance policy for you should not just be driven by cost alone. You also need to consider the financial strength of the insurer, their service standards, underwriting process and the quality of any additional benefits like critical illness cover. An independent financial adviser can research the entire market for you to find appropriate cover at a competitive rate. They can also review your existing term assurance policy to see if you can save some money or improve the benefits your family would receive in the event of your death. Disclaimer: This publication is provided for general consideration only and the information contained herein is not to be acted upon without professional independent financial advice. Neither Informed Choice Ltd nor any author can accept responsibility for any loss occasioned to any person no matter howsoever caused or arising as a result of or in consequence of action taken or refrained from in reliance of the contents hereof. Informed Choice Ltd are independent financial advisers and is authorised and regulated by the Financial Services Authority. - Martin Bamford of Independent Financial Adviser Informed Choice Ltd
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