Term Life Insurance - The Cheapest Protection

Written by Steve Wentworth
Monday, 4th October 2010

Introduction

A basic introduction to term life insurance, this article describes the two cheapest forms of term life insurance available in the market place and some suggestions on where these are best used.

Term life insurance

Term life insurance is the cheapest most basic form of life assurance available. It does not include an element of investment. It's core feature is to only payout the sum assured if the death of the life assured occurs within the set period of time known as the term. If the policy is cancelled within the term then there is no cash value for the premiums already paid.

Decreasing term life insurance

The absolute cheapest version of term life insurance is decreasing or reducing term life insurance. Premiums for this type of insurance are lower due to the fact that the sum assured reduces to zero over the term period. This makes this type of term life insurance beneficial to protect a capital and interest repayment mortgage, since the mortgage balance reduces month by month. Should the life assured die at any point within the term then the sum assured will be sufficient enough to repay any mortgage debt and thus removing the burden on the remaining spouse and or family.

Advantages

• Decreasing term insurance is much cheaper than level term insurance.
• Can provide a cash lump sum to your dependents if you were to suffer loss of life. This cash lump sum can be sufficient to clear a mortgage or loan debt, providing the mortgage or loan is on a full repayment basis.
• Can be used as family protection to cover say your dependents education to age eighteen or twenty one. Since the cover decreases, you may not need the same level of cover for a 13 year as you would for a 3 year old.

Disadvantages

• If you are to survive beyond the term period then the policy has no maturity value. All premiums paid are lost. This is a protection only product no investment.
• The sum assured decreases from month to month, however the premiums will remain the same, level term insurance may be better value for money.
• The policy only pays out on death or terminal illness of the life assured. (Providing not taken with critical illness cover as well)

Level term life insurance

Level term life insurance offers a fixed sum assured throughout the term (the same amount for period of cover), the premium is obviously more expensive than decreasing / reducing term assurance, however the advantage is the benefit amount will remain constant. This type of policy is more suited to family protection (protecting your loved ones with a fixed cash amount on your death). But may also be suited to protect an interest-only mortgage or for business protection such as key man insurance, or shareholder protection.

Advantages

• The sum assured remains the same throughout the term of the policy. Therefore on death of the life assured the policy will payout the full sum assured meaning you can plan for the right amount of cover at any point in time during a specific term.
• A more appropriate life cover to protect the family and dependents. However this is only a one of lump sum payment.

Disadvantages

• If you are to survive beyond the term period then the policy has no maturity value. All premiums paid are lost. This is a protection only product no investment.
• Only provides a lump sum payment on death of the sum assured, if your family or dependents require a regular monthly income then family income protection may be more suitable.

About the author:

Steve Wentworth formed his firm Wentworth Financial Services in November 2007 having been in the industry since November 2002. Do you need a quote for cheap term life insurance we have life insurance starting at 16p per day.