LIFE ASSURANCE GUIDE

Term Assurance

Term Assurance is a life insurance policy which covers the life of a person in monetary terms in return for a payment, usually monthly, and known as a premium. Term assurance is the cheapest and simplest form of life cover, providing life assurance for a fixed term only.

The sum assured is payable only if the life assured dies within that term.

There is no investment value to the policy at any time.

In the case of Level Term Assurance the sum assured does not change during the term of the policy. Policies are generally used to repay a loan on the death of the borrower (the life assured). Level Term Assurance is most suitable when the loan has a fixed capital value that remains unchanged throughout its term.

Decreasing Term Assurance indicates that the sum assured decreases over the term of the policy. This is commonly used to protect a capital & interest repayment mortgage, where the outstanding balance reduces during the life of the borrowing.

Policies can cover a single life or be on a joint life basis.

Critical illness cover is a common additional benefit that can be added to a Life assurance policy. The sum assured is payable on the conclusive diagnosis of a critical illness, such as cancer, a heart attack, multiple sclerosis or a stroke.

(Nowadays policy premiums usually vary depending on whether or not the proposor is a smoker or non-smoker. A non-smoker is generally defined as someone who has not smoked cigarettes in the last 12 months. Cigar and pipe smokers are sometimes classed as non-smokers. The rates will also vary for male / female.)

An endowment policy

An endowment policy is a savings policy which provides life assurance cover for a policyholder. The policy exists for an agreed term, the minimum term usually being 10 years.

A cash sum is paid out at the end of the policy term (on maturity), or in the event of the earlier death of a policyholder, either a predetermined sum (in the event of death) or an agreed capital sum on maturity. Bonuses are added to the policy, usually annually, and once added are guaranteed.

This type of policy has traditionally been used to repay an interest-only mortgage. On maturity the amount payable is the sum assured plus annual and terminal bonuses that have been allocated during the life of the policy.

A low cost endowment policy does not guarantee to repay a mortgage. However, most reputable life offices will check the performance of the policy ten years before maturity, five years before maturity and then annually to ensure that it is on target to provide the required sum. If a shortfall is likely, they will inform the policyholder of what action to take or options that are available.