Types of Life Term Assurance Explained

Fundamentally, there are two types of life insurance in the UK:

• Whole of Life Assurance.
• Term Assurance.

The clues are in their titles:

• ‘Whole of life’ assurance is literally a life assurance scheme for the whole of your life and provided you pay the premiums for life, your loved ones or your estate are ‘assured’ there will be guaranteed pay out on death.
• ‘Term’ assurance means that the life insurance policy runs for a specific term e.g., 5 years, 10 years, 25 years etc.  Provided you pay the premiums for the term of the contract, your loved ones or your estate are ‘assured’ to receive a guaranteed pay out on death during the term.  This is why we technically call it life insurance as there is no guaranteed pay out after the end of the term, so if you have not claimed, the policy ends.  Just in the same way as motor insurance or household insurance.  Policies of insurance only pay out if there is a valid claim during the cover period.

Term assurance is usually cheaper as it is usually pure death insurance during the period.  It will usually be cheaper than ‘whole of life’ and usually better value for money than many ‘over 50s’ plans.

Several types of Term Assurance:

• Level Term Assurance (LTA) where the sum assured value on death remains the same.
• Decreasing Term Assurance (DTA) where the sum assured value on death gradually decreases e.g., in line with your mortgage debt outstanding (mortgage decreasing term assurance MDTA) or gifts for inheritance that may stay inside the estate if you die prematurely i.e., within 7 years (gift inter vivos GIV).
• Renewable Term Assurance where the policy can be automatically renews at the end of the term (you will like then pay more to renew as you are older).
• Convertible Term Assurance (CTA) where you can convert your level term cover to whole of life cover at any time before the end of the term.
• Increasing Term Assurance (CTA) where you can increase the amount of cover by say inflation or a fixed % each year and your premiums will increase each year.

Guaranteed or Renewable?  Guaranteed cover means your premiums are guaranteed for the term of the policy and renewal cover meaning premiums will also increase.

Where and Why for Term Assurance?

• Family Protection.
• Mortgage Protection.
• Inheritance tax gifts and the 7-year rule.
• Business protection for fellow shareholders, partners, or key persons.

Term assurance is usually cheaper than other life insurance protection and usually better value for money and cover £ for £ than over 50s life cover.

Term assurance can also have other bolt-ons added such as critical illness insurance i.e., pays out not if you die but if you develop a serious, life changing or life-threatening illness or injury.

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