What is term life insurance?
There are two principle types of life insurance: term life and whole life. We’re looking at what term life insurance is, what it is used for and whether it’s the right kind of policy for you. Fixed rate term life insurance.
The ‘term’ of ‘term insurance’ refers to the amount of time the policy runs for, which is defined by you and your insurer when the policy is taken out. It’s also known as a policy’s ‘lifetime’. Depending on what you want your payout to be put towards, the length of your term can be longer or shorter, however there will always be a maximum possible length depending on the insurer.
These policies are designed to pay out if you die during their lifetimes. However, if you die after the term has expired, then your provider will not pay out.
The advantage of term life over whole life – which insures you for however long you live – is that premiums are usually cheaper and the different types of term policy are designed to be used for specific ends.
How do I know if I need term life cover?
If you’ve found yourself thinking about buying life insurance, then in all likelihood you have started to assess what financial situation you would leave your loved ones in should you no longer be around.
It’s always a good idea to take stock of your financial situation, even if there is no particular cause to do so. The amount of money you leave loved ones will have a significant impact on their lives, and may help when making decisions on important life choices, such as whether they will be able to stay in the same school or continue to live in the house they are used to.
Consider the amount of money you are likely to leave and compare it to the ongoing cost of living that will continue after you’ve gone. Check your employer’s death-in-service policy to see how much it would leave your loved ones with, as well as factoring in any savings, investments and saleable assets you may have.
Compare that to your financial obligations, such as mortgage repayments, day-to-day living expenses and contracts. Try to be as thorough as possible as even things like insuring, taxing, servicing and running a car can potentially cost thousands of pounds.
It is quite possible that you discover that your loved ones ability to finance life as they know it would change dramatically without your income, even if you are well-off. If you find yourself in this position, then buying life insurance may become a serious consideration.
What does a term life insurance quote consider?
To get a term life insurance policy, a number of factors will have to be considered to assess your situation and level of risk.
The most important factors will be:
your lifestyle, including whether you are a smoker
any pre-existing medical conditions
you and your family’s medical history
and whether or not you have a mortgage.
Some of these are in order to judge how much of a risk you pose to the insurer. Smokers, for instance, are likely to attract higher premiums than non-smokers, and people with certain pre-existing medical conditions may find it hard to get covered. Similarly, certain professions (such as soldiers) are not covered by many ‘standard terms’ policies.
Online life insurance cover
If you only want term life insurance to cover your outstanding mortgage repayments, then you won’t need to pay for a £500,000 cash lump sum as well. Therefore, decreasing term life cover might be an option to consider. It’s important to work out how much cover you would need to make sure your mortgage repayments are covered.