What is term life assurance?

16 May2021

Term life assurance is a kind of life insurance policy that is only active for a certain period of time. The time that the policy is active is referred to as the "term."

When you choose your policy you will choose how long you want your term to be, whether it's five years or fifty. This will depend on your personal requirements. Many people decide that they only want life insurance until their mortgage is paid off or their children have moved out, for example. Once your policy expires your cover will end.

Term life assurance is generally a lot cheaper than investing in whole-of-life insurance. Knowing that you have guaranteed insurance for the rest of your life can be very reassuring, but some people only need their policy for a certain amount of time. It is important to explore different kinds of term life assurance to find the best one for you.

Level term life assurance

Of all the different life insurance policies, this is probably the easiest to get your head round. Level term life assurance can be a reliable kind of policy because you can choose the amount of money that your dependants will receive if you die. Most people base this on how much money they will owe on their mortgage or how much they think their children will need. Ultimately, however, the final amount is determined by how much you are willing to pay per month. As long as you follow all the terms and conditions of the policy and keep up your monthly payments, you know exactly how much the final payout could be. This could give you a lot of peace of mind.

Decreasing term life assurance

The basic concept of decreasing term life assurance is that as your policy continues, your potential payout gets smaller. This can be a confusing concept - why would you want a policy that pays less over time? Some other kinds of life insurance are designed to pay out more as time goes on. If you have a sound outlook into your financial future, however, you may be able to predict that your family will need less money as time goes on.

Decreasing term assurance is commonly linked with mortgages. This is because they also decrease in size as time goes on. The idea behind decreasing term is that the amount your family would receive is only ever as much as they'd need. You could set the end date of your policy to coincide with fully paying off your mortgage.

This kind of insurance is also popular among people who want the life insurance money to support their children. As time goes on the children will grow up and become more and more financially independent. They will therefore need less and less from the insurance policy and eventually will not need it at all.

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