The different types of Term Assurance explained

Level term insurance

Level term life insurance covers you for a fixed period and pays out a lump sum if you die during the policy term.

  • The amount you are covered for is fixed at the start of the plan and won’t change.
  • The premiums remain fixed throughout the term of the plan as well.
  • This type of cover could be used to cover an interest-only mortgage, other debts or to help look after your loved ones when you die such as paying for education.

Advantages of level term insurance

  • If you want to leave a cash sum to your family and dependants or to pay off a mortgage after you have died, level cover life insurance could be right for you.
  • It provides certainty as both the cover and the premiums are fixed.

Disadvantages of level term insurance

  • The policy only pays out if you die during the term of the policy.
  • There’s no investment element with this form of life insurance so if no claims are made you won’t get any money back at the end of the term.
  • It won’t keep up with inflation and may buy less in the future.

Decreasing term insurance

Decreasing term insurance covers you for a set term and pays out a lump sum if you die during the policy term.

  • This type of cover is specifically designed to cover the reducing amount you owe on a capital and repayment mortgage, where the amount you owe decreases year on year.
  • The amount you are covered for goes down each year, but the premium you pay remains fixed.

Advantages of a decreasing term

  • If you want to leave a cash sum to your family or dependants to pay off a repayment mortgage or loan after you have died, decreasing term insurance could be right for you.

Disadvantages of a decreasing term

  • The policy only pays out if you die during the term.
  • Cover reduces each year over the term. There’s no guarantee that it will cover your mortgage.
  • There’s no investment element with this form of life insurance so if no claim is made you won’t get any money back at the end of the term.

Single versus joint life insurance

Joint life plans are usually taken out where the death of either person will have a significant impact on the lifestyle of the other, particularly where there are children involved.

You can choose to take out a plan that covers just yourself, or yourself and your spouse, civil partner or someone you share a financial commitment with. A single life plan insures only you and pays out if you die during the plan term.

However, if the life cover is intended for a couple, then as an alternative to a joint plan, each person can take out their own single life plan and choose to have different amounts and cover periods.

Single life insurance

  • If you both take out a plan, if one person dies their plan would pay out, and the other person’s plan would continue, and they would still be covered. This is unlike a joint plan, which only pays out once, when the first person dies. The plan then ends, and the second person is no longer covered.

Joint life insurance

  • Covers both people insured for the same amount of cover and length of time.
  • The plan pays out for the first death only
  • After that, the plan stops and the surviving person is no longer covered.
  • Taking out a joint life insurance plan normally costs less than two single plans.