Term Life Insurance Explained

author image - crispin

By Crispin O'Toole-Bateman

on Friday 7 June 2019

Father sat with his kids on the sofa

What is term life insurance?

It would make sense that life insurance lasts until you pass away. After all, isn’t that the very thing you are insuring?

However, whole of life insurance that is guaranteed to last well into your old age and beyond can be a little too rigid for some, especially as your insurance needs tend to change as life goes on. While you are paying off your mortgage, for example, you need enough insurance to cover that significant outgoing. With the kids at home and in full-time education, you’ll want insurance to keep them safe. But when the kids are gone, the house is fully paid off and you are looking at retirement, do you really need a huge life insurance policy?

Term life insurance is customised insurance that just covers you for the big things in life while you need it and then it dissolves, allowing you to get a more appropriate level of cover for your retirement and later years.

Understanding the terms of term life insurance

What exactly is a ‘term’?

Term means ‘length of time’. When you get out a term insurance policy, it has an end date. This might be set to your retirement date, the day your mortgage is finally paid off, or the 21st birthday of your youngest child – whatever suits the policy you are after.

Once the policy has passed its term, you no longer make payments and you are no longer covered. You cannot claim back any of the money you’ve put into the policy over the years – it is simply done and dusted.

Level term insurance vs. decreasing term insurance

A level term policy has a payout amount (called the ‘sum assured’) that never changes – it remains level. A decreasing term policy has a sum assured that decreases over time. But why would you want that?

Decreasing term insurance (often referred to as decreasing term assurance or DTA) is typically used to cover a repayment mortgage. As time goes on, the amount you owe on your mortgage goes down, so the level of cover you need goes down with it until it naturally closes off when your mortgage is all paid up.

To determine the cost of your premiums, life insurance companies will assess the amount of financial risk you pose to them; the lower the risk you are, the cheaper your premiums will be. So, because you need less cover over time with decreasing term life insurance, and because you are less likely to pass away within the term, it works out substantially cheaper than any of the alternatives, allowing you to secure your home for your family at a very low rate.

Of course, decreasing term insurance isn’t suitable for providing for expenses that don’t drop over time, and that’s why level term insurance (LTA) is available too – giving you customisable options to suit your life.

The uses of term life insurance

There are four main types of life insurance, each with its own specific use, but the two types of term life insurance are considerably more popular for people during their working lives.

Common reasons for level term life insurance:

  • Providing general financial security for the family – when you pass away, your family is going to be without your salary, and it could take many years before they are in a position to manage alone. At Unite Life, we recommend a level term life insurance plan which gives them that space for a full decade – giving ten times your salary as a single payout to manage day-to-day living and expenses.
  • Providing for your children’s education – we all know that the costs associated with education and moving into a working life are considerable. As a parent, you want to provide enough financial stability for your children to allow them to pursue their dreams, whether that’s at university or bravely kick-starting their first enterprise.
  • Giving an inheritance – whether its because you always imagined paying for their first car or taking them on holiday around the world, sadly your passing will mean your children must do these things with only your memory. Providing a financial inheritance for your loved ones gives them that chance to have those good times you always intended.

Common reasons for decreasing term life insurance

  • Covering the mortgage – a grieving family doesn’t want to also suffer the horror of losing their family home. An affordable decreasing term life insurance policy tied to your mortgage ensures the house is safe no matter what. A valuable security in unsure times.
  • Paying off other debts – car repayments, personal loans, debts to friends and family – while the mortgage is the borrowing that most focus upon, other debts can be just as debilitating to have to cover. Thankfully, decreasing term cover can deal with these financial obligations effortlessly.

Term life insurance FAQs

What’s the difference between term and whole life insurance policies?

With a set start and end date, term policies are less risky for the insurance company as you are likely to outlive them, and as such, they are offered at a far more affordable rate than an equivalent whole of life cover policy. Also, because the level of cover needed during your working life is often considerably higher than in retirement, it is advantageous to choose the right type of policy. Often, multiple life insurance policies can be used to get the greatest benefit from each option.

Is term insurance a good idea?

Term insurance is an excellent way to provide the maximum financial benefit for a low premium. Speak to our experienced advisors at Unite Life today to see how it would fit your personal circumstances.

How much does term life insurance cost?

There are many factors that determine the cost of your life insurance premiums, from the total value of the sum assured through to your age and health at the time of application. Cover is available from as little as £5 per month, depending on the individual, and scales in an affordable way to suit your needs.

Do I need term life insurance?

If you have a family who will be left financially struggling in your absence, then you definitely need life insurance. It’s an affordable financial security blanket that will provide for your loved ones if the very worst happened.

Where can I get the best life insurance quotes?

At Unite Life, we work with the largest spread of life insurance providers in the UK, comparing all the different policies available to make sure we find one that is perfectly tailored to your circumstances.

Our friendly team are registered advisors, so rather than simply trying to push you towards a policy for profit, we work with you without prejudice to find the best and most suitable package for you and your family. We are there to answer any questions you might have and will make sure you get a policy you can afford.

Call today or fill out our 60-second contact form for the best life insurance quotes or just to ask for a little more advice, obligation-free!

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