What is fixed Term Insurance?
This is usually very affordable life insurance, and is set over a fixed period of time which guarantees to pay out if it transpires you die before the policy expires. One important factor to note with these policies is that there is no cash in value; and that the total sum which is paid out on death can mean that it will have reduced in overall value. The total premiums paid may well not cover the total costs of a funeral if that was the intention but if it is as a cash sum for your family or friends there may not be a problem.
There are varying different policies for Term Insurance
Level Term Insurance
This insurance policy means the full fixed sum is paid on death (if terms and conditions have been met) and will remain the same for the duration of the policy. The time period is between 5 – 30 years and can be an agreed time period, the paid sum is not index linked.
Advantages of level term insurance
The premium paid each year remains the same for the duration of the policy
Disadvantage of level term insurance
You do not have a cash pay – out at the end of the term and the coverage ends / stops when payments stop
Increasing Term Insurance and Decreasing Term Insurance
These two types of term insurance are as their name implies one goes up yearly the other down. They are used usually for differing financial purposes.
Advantages of Increasing Term Insurance
The Increasing Term Insurance is used so the benefits increase year by year with the premiums increasing accordingly.
Disadvantage of Increasing Term Insurance
As a long term protection scheme this may not be your best option as the premiums may increase more than the overall benefits.
The Decreasing Term Insurance is sometimes referred to as mortgage Protection Insurance and is specifically aimed as a debt repayment. This can be for all different kinds of loans with the beneficiary receiving an ever decreasing amount in line with the policy issued. This form of repayment is to prevent you from passing on debts to your family or beneficiary.
Advantages of Decreasing Term Insurance
This type of insurance is usually used to cover a mortgage, a loan or any other type of debt; and it is generally purchased by people who have financial obligations that decrease over time.
Disadvantage of Decreasing Term Insurance
This has as the name implies a decreasing value as your debt or mortgage reduces which means there is no maturity value.
Renewable Term Insurance
The policy is as the name suggests one that at the designated end of the policy you have the option of renewal but as you have aged so the policy premiums will have increased. There is no build up cash value and the beneficiary of the policy will only receive the policy value. When you take out a renewable term policy you can take it out over a fixed period of time usually from 10-30 years. Often when these policies are set up the terms can be more favourable as they can offer more level premiums.
Advantages of Renewable Term Insurance
It may be of benefit to choose an annual renewable term insurance if you have not fully established your life insurance financial needs. This type of policy can be altered or cancelled without a penalty which you would have with longer term policies
Disadvantage of Renewable Term Insurance
The renewal of these policies tend to depend on an examination from a doctor to assess the new premium rate, and if you have poor health or smoke this will mean higher payments.
Convertible Term Insurance
These policies are not really suitable for the over 50’s looking for insurance as they are usually commenced at an early age with the option to change them as time and circumstances alter. They are an excellent way to build foundation blocks as the premiums are reasonably low with the ability to build up a cash value for investment.
Advantages of Convertible Term Insurance
This type of policy allows you the flexibility of changing the policy into a whole life, variable life or universal life insurance policy.
Disadvantage of Convertible Term Insurance
This type of policy is the one you wish you’d set up years ago as you could convert it and you wouldn’t be refused based on your health even though your premiums would increase.
It is important to note that the information in this article is advice only and should not be considered financial advice please speak to a financial adviser for full, comprehensive and up to date guidance.