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Term insurance is where cover is provided
for a fixed term. The sum assured will
only be payable on death, with no investment
benefits nor payment on survival.
It is important to understand this concept.
Should you survive past the end of the
term, you will not receive any payment
as your policy will expire. Should you
stop paying the premiums at any time,
cover will stop, and there is no surrender
value. This is unless you pay extra on
your premiums to have a waiver of premium
so you can get a break from premiums should
you lose your job.
For all types of term insurance, the amount of your premiums is determined
by certain variables such as your age,
the amount you want to be insured for,
the length of the term, and whether you
smoke or not. You may or may not need
to undergo a medical. Ultimately, the
insurance company lays bets on the chances
of you dying whilst the term lasts.
Level term insurance means that your premiums are set at a
level and do not move up or down. The
sum assured will remain the same throughout
the term as well, which is a disadvantage,
as it will not take into account the effect
of inflation. |
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Increasing term assurance is a fixed term policy where the sum assured
will increase, either by a set percentage
or by the Retail price index (RPI) throughout
the policy term. Your premiums will rise
according to the RPI if the sum assured
does the same.
Renewable term insurance is policy lasting for a smaller period,
usually five years, which can be renewed.
Renewable increasable term insurance is
the same as above but provides for an
increasing sum assured.
Decreasing term insurance is where the
sum assured decreases over time; hence,
the premiums are set lower. This is commonly
used to cover a mortgage.
A Gift inter vivo policy is designed
to cover for inheritance tax where a potentially
exempt lifetime gift has been made. The
sum assured will decrease over the seven
years that a person will need to survive
after giving the gift to make inheritance
tax not payable.
Finally, there is the level family
income benefit, which provides
a tax free income from the date of death
until the term is ended. You can commute
the income to a tax free lump sum.
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