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Last updated: 10 February 2022
Put simply, life insurance is designed to pay out a sum of money after you’ve passed away. Term life insurance is one of the most common types of cover. Under this policy, the payout is only made if you die within a fixed period of time. If you die after this pre-agreed time frame (which is called a term) then you won’t receive a payout.
Because of this, term life policies normally have lower premiums than policies which cover you for your whole life. If you want to be guaranteed a payout no matter when you die, go to our whole of life insurance comparison page.
Level term policies are fairly straightforward. You set both the amount of cover (e.g. £5,000) and the length of the policy term (e.g. 20 years).
If you die at any point in that 20-year period, then your family would receive a payout of £100,000. The payout is the same whether you die within a year of buying the policy, or if you died a year before the policy expired. If you live beyond the policy term, then you’ll have to take out a new policy.
One benefit of term life insurance is that your premium will never increase, even if your health declines unexpectedly. This means that your life insurance costs remain predictable, and you can rest assured your family will receive your payout if you die within the term.
Term life insurance comes in different forms, where the payout can increase, decrease or stay the same.
It’s worth remembering that the more options and flexibility you build into your policy, the higher the premium you’re likely to be quoted by an insurer.
If you don’t want your payout to be given to your family in a single payment, you could look into a family income benefit (FIB) policy. This type of policy pays out an income to your family after you die. The policy pays out monthly until the term ends. For instance, if you die 10 years into a 20-year policy, then an income would be paid out for the remaining 10 years.
A FIB policy can offer financial stability to your family, and help them pay their monthly bills until, for example, your children leave home. For more advice on deciding the best plan for your family, check out our family life insurance page.
If you want to specifically cover your mortgage (as this is likely to be your largest outstanding debt) then a decreasing term life insurance policy might be of interest to you. This is also known as mortgage life insurance. It’s commonly used to cover a person’s outstanding balance of a mortgage loan.
The overall debt decreases over time, as you make more repayments to your mortgage. Accordingly, the level of mortgage life insurance cover that you need decreases. So, the amount that you’re covered for decreases over the term of your policy to match your outstanding debt.
For example, if you died two years after buying the policy, the payout would be higher than if you died 20 years later.
Because most term life insurance policies don’t change their payout over time, you’ve got to choose your level of cover very carefully before buying. Remember that your circumstances can easily change. For example, if you’ve currently got children depending on you, are they going to reach adulthood and move out fairly early on in the term? It’s worth looking at your situation every now and then, to make sure you aren’t overpaying on your policy, or under-insuring yourself.
You need to compare life insurance quotes from providers that offer term life insurance policies. You can get quotes online, but some can also give you quotes over the phone or in branch. To get a quote, you’ll need to give an insurer the following information:
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