Term life insurance: How does it work?

Term life insurance is a standard form of life insurance policy, providing cover for a set period. As one of the cheaper types of policy, it offers protection at an affordable cost. Learn how it works and the types of cover available for you and your loved ones.

Types of term life insurance?

With most insurance providers, term life insurance comes in three forms of cover:

• Level term insurance - This is the standard type of term life insurance, of which the pay-out amount is fixed throughout the policy term. 
   

• Increasing term insurance - The policy pay-out increases over time in order to try and offset the effects of inflation. As the payout amount increases, so too do your premiums.
   

• Decreasing term insurance - Typically used to cover a large debt, such as a mortgage. The payout decreases over the policy term - usually by a fixed percentage stated when you take out the policy.

What are the pros and cons of term life cover?

There are a number of positives for buying a term life policy. But like most things in life, it has its disadvantages too...

Alternative types of life insurance cover

Whole life insurance

Rather than covering you for a certain period of time, like term insurance, whole life insurance covers you for the rest of your life. Whole life policies pay out regardless of when you die, issuing a lump sum payment to your loved ones. Both the value of the payout and cost of your premium payments remain the same throughout the policy.

Term life insurance works differently from whole life insurance - which provides cover for the remainder of your life, as opposed to a specific policy term. One of the main differences between the two is that whole life policies typically occur a higher monthly payment for premiums, than term policies.

If you’re struggling to decide between term and whole cover, check out this helpful article - Whole And Term Life Insurance: Which Is Better?

Joint life insurance

If you and your partner share equal responsibility of your household's income, you should consider getting a joint life insurance policy. A joint policy provides financial protection for two people within a single policy. Its popularity with couples is due to the fact it can be easier to manage and work out cheaper than buying separate policies.

Joint life insurance has two types of cover - first death and second death. First death pays out after one of the policyholders dies. The surviving member receives a payout which they can use to cover the household's finances. Second death pays out after both policyholders have died.

What can term life insurance cover?

The pay-out from a term life insurance policy can benefit your family with financial support during what is already a difficult time. Depending on the type of cover you opt into, the pay-out can be used to pay towards things such as:

Ultimately the amount of cover you need reflects on you and your family's circumstances. If you are unsure about how much cover you might need, then consider speaking to one of our expert advisers. They will be able to work through your protection needs and make recommendations tailored to your current situation.

How much is term life insurance?

Generally, term life cover is an affordable option for life insurance, though there are several factors that are used to determine the cost of your policy. Usually, when taking out a life insurance policy, your insurance provider will ask you some basic questions about your health and lifestyle. 

It’s important to answer all of these questions 100% openly and honestly. If not, your policy could be voided and you’ll lose money on the premiums already paid.

Having a pre-existing medical condition can also increase the cost of your monthly premiums. In this case, it may be worth looking at guaranteed life insurance and/or speaking to an adviser. 

What happens if you outlive the policy term?

One of the downsides to having a term life insurance policy, is that it doesn’t provide permanent protection. Should you survive the policy term (which is never a bad thing!) your policy expires, in which case you will no longer be covered should you die at any stage after. Furthermore, you won't be able to claim a return for any of the premiums you paid into the policy.

Despite this, premiums for whole life insurance tend to be more expensive than term life policies. In this case, you may want to stick with a policy like level term life insurance if you’re looking to keep costs down.

What happens if I can't pay my premiums?

If you are unable to pay your premiums, there are usually a few options available.

For example, if you are struggling to pay your premiums because you’re currently off work ill, and your plan includes waiver of premium, your insurer will cover your premiums for you and you won’t lose the cover.

Alternatively, they may be able to grant you some sort of payment holiday or repayment plan.

It’s important to speak to your insurer before making any decisions about your policy. They will be able to provide more information and advice on what options are available.

How can my loved ones make a claim?

Once you have passed away, your family must notify your insurer, either by calling them on their contact number or online. There's no time limit on filing a claim for a life insurance policy, so you can focus on more important issues during this difficult time. 

Once contacted, our insurance provider will ask your selected beneficiary to fill out a claims form. This can usually be done in person or online via your provider's website. They will also ask for documents such as your death certificate and policy document.

In some cases, your insurance provider can deny a claim made against your policy. There are a handful of reasons for this such as:

• You've die after the policy term expires
   

• You provided inaccurate information when applying for cover (for example by deliberately withholding medical information)
   

• Your beneficiaries are unable to provide the necessary documentation to make a claim
   

• The type of death is not covered under your policy

If you're unsure about which types of death are covered under your policy, check your policy agreement or contact your insurance provider.

Where can I buy term life insurance?

No matter the type of cover, life insurance offers peace of mind for you and your loved ones. So why not take out cover today and give your family the protection they deserve?

At Cavendish Online we provide a number of ways to find the best and most affordable solution for life insurance cover. Our team is on hand to help you find a policy that suits your circumstances, with no hidden fees or sales pitches.