Types of term assurance

Level term insurance

Being ‘level’ the sum assured will remain the same during the term of the cover. You can guarantee the premiums so there are also no change to the monthly commitment during the lifetime of the policy. You can opt for renewable premiums which means that at a policy review they could go up or the sum assured reduced, dependant on mortality and morbidity rates. You specify how much cover you want and for how long.

Who does it suit?

People who want to protect fixed debts that will be repaid over a fixed term, such as an interest only mortgage, or to provide family or business protection. You can index the sum assured to cover against inflation but remember the premiums will also increase.

Decreasing term insurance

Also known as mortgage protection insurance, with decreasing terms, the premiums you pay remain the same, but the cover reduces slowly during the term of your policy, dropping off steeply at the end. You specify how long you want the life insurance policy for and the starting sum assured (the amount your dependants receive if you die).

Who does it suit?

Typically, decreasing term policies are taken out by people on repayment mortgages, as they pay off capital and interest over the mortgage term, reducing the amount owed over time, until it reaches zero. Your decreasing term insurance policy will gradually reduce at the same pace.
Premiums on these policies tend to be cheaper than level term protection.

Family income benefit

Family income benefit insurance is taken out for a set term. If you were to die during this time, instead of paying a lump sum, it will pay your dependants an agreed tax-free income until the policy term expires.
You specify the level of income you want your family to receive tax-free, possibly equivalent to your monthly salary, and how long you want protection for. Policies are usually written on a single basis, in trust, with the surviving spouse or partner or family benefiting. If you die with one year of the policy remaining then the policy will pay the set monthly income for one year.

Who does it suit?

It suits families with young dependent children, to reflect the financial commitments until they’re self-sufficient. A regular income rather than lump sum may alleviate the pressure of apportioning money for the remaining term for the surviving partner.

Your home may be repossessed if you do not keep up repayments on your mortgage.