What is it?
It is a type of life insurance that pays out if you die during the policy's term.
What types can you get?
There are two types of term life insurance policy:
Level term: Your premium stays the same throughout the policy's term, and the payout stays the same.
Decreasing term: Your premium stays the same, but the payout decreases over the policy's term.
How do they work?
The premiums you pay on a decreasing term insurance policy will be cheaper compared to a level term policy, but the payout you get will be less each year the policy runs too.
For example, if you set up a 20 year policy with £50,000 worth of cover, this is how the payout could change over time depending on the policy you choose:
| Remaining term | Level term payout | Decreasing term payout |
|---|---|---|
| 20 years | £50,000 | £50,000 |
| 15 years | £50,000 | £37,500 |
| 10 years | £50,000 | £25,000 |
| 5 years | £50,000 | £12,500 |
| 1 year | £50,000 | £2,500 |
Decreasing term life insurance policies can be taken out alongside mortgages, so the payout reduces in line with your monthly mortgage repayments.
If you do not want a lump sum
You could look for a family income benefit (FIB) policy, which pays out an income to your family when you die instead.
The policy will pay out monthly until the term ends. For example:
If you die 5 years into a 20 year policy, an income will pay out for the remaining 15 years
If you die 15 years into a 20 year policy, an income will pay out for the remaining 5 years
This can offer financial stability to your family and help them pay their monthly bills until a time when they may not need as much support, for example, when your children leave home.
If you die after the term ends on the policy, your family will not get a payout.
How do you apply?
You need to get quotes from insurers that offer term life insurance policies.
You can get quotes online through an insurer's website, but some let you get quotes over the phone or in a branch.
When you get a quote, you need to give the following information:
Your personal details: This includes your name, address, date of birth and your medical history. You will also have to say if you smoke or have ever smoked.
How long you want the policy to last: Choose from 1 year to 40 years, depending on the insurer and your age.
How much cover you want: Choose up to several million pounds, depending on the insurer. The higher the amount, the higher your monthly premiums will be.
You can only claim on a term life insurance policy if you die during the term.
Compare quotes from several insurers to find the cheapest premiums for the cover you want. Then you can buy the policy by setting up a direct debit and the cover will start straight away.
