A basic Life Term Insurance Policy is an affordable financial protection against the unfortunate and unexpected event of your death. It is possible to take out a Life Term Insurance Policy with additional features such as Critical Illness Insurance cover but here we are covering only the stand alone life cover.
The objective of a Life Term Insurance Policy is to pay out a guaranteed lump sum following the death of the life assured, or one of the lives assured if the policy is taken out in joint names. There can be only ever be one claim per policy. The sum assured benefit acts as financial security to your family or loved ones, those that are financially dependent upon you or to pay off a debt of mortgage. Most insurers will pay out on death only whereby others may pay out should you be diagnosed with a terminal illness whilst the policy is in force.
The common misconception is that buying Life Insurance is expensive. This is completely untrue and a Life Term Assurance Policy is one of the cheapest products on the market. For more information please see our 'Life Term Insurance Cost' page. We have provided some in depth case studies as examples as we believe this will make the entire process much more understandable.
The proposers, who will be the policy holders/owners, choose a fixed sum insured and a fixed term or period that the policy will be taken out over, for example $50,000 over a 20 year term, the policy commences July 1 2010 and expires July 31 2030. The length of the term available is usually between 5 and 30 years.
Customers will complete an application with the insurance company on-line, over the telephone or if going through a broker in person. By applying for life insurance you are entering into a contract with the insurer so in order for the insurer to find out exactly how insurable you are they will ask you a series of questions which must be answered in complete honesty or to the best of your knowledge.
The basic cost of the insurance is based upon mortality tables which provide costs in relation to an applicant's age, and whether they use tobacco products or not. This forms the basic Life Insurance Premium. This should match the premium that you would have been quoted if you chose to get a quote before applying as it does not include any potential inscrease following the underwriting process.
There are also medical and lifestyle questions that will need to be answered and these will decide whether your policy will need to be underwritten, please see our 'Life Insurance Underwriting Guide' and for a comprehensive guide to what questions you will be asked when making an application for a Life Term Assurance Policy please see our 'Life Insurance Questions' site.
All of the questions on the proposal form are asked on the lives assured, it is possible that the policy holders/owners and lives assured can be different.
Some examples of the most common applications:
Mr and Mrs Torres take out a joint policy on their own lives, they are the joint policy holders/owners and the joint lives assured. They will answer all of the application questions on themselves and a claim can be made on the policy by the survivor when the first one of them dies during the term(It is possible to chose for the policy to pay out on the second death of the lives insured, check when applying). The proceeds are paid to the surviving policyholder/owner.
Mr Carragher takes out a single life policy on his own life, he is the sole policy holder/owner and the sole life assured. He will answer all of the application question on himself and a claim can be made upon his death during the term by those administrating his estate. The proceeds are paid to his estate unless he should put the policy in place to pay to a beneficiary(somebody financial dependent on him) or a debtor, for example mortgage company.
Mr Gerrard takes out a single life policy on the life of Mrs Gerrard, he is the sole policy holder/owner and Mrs Gerrard is the sole life assured. Mrs Gerrard will answer all of the application questions on herself and a claim can be made by Mr Gerrard upon her death during the term. The proceeds are paid to Mr Gerrard.
Who can take out a Life Term Insurance Policy?
* Anybody resident in the jurisdiction of the insurer aged 16 or over, some insurers may have a maximum age limit, for example 85.
How much Life Term Insurance Cover do I need?
This is unique to each and every customer. It is important to know how much cover you require when buying Life Insurance. If you chose an unusually high sum then the insurer will ask for this to be justified.
It is advisable that you go through your financial needs with a financial adviser who will help you recognise the amount of cover that you should be applying for.
Things that should be taken into consideration are:
* Outstanding mortgage
* Outstanding debts
* School fees for your children
* Replacing your income should you die and for example leave your partner alone to look after your children
We hope that this Life Insurance guide has been useful and informative and can go someway to assisiting you in going ahead and buying Life Insurance in the form of a Life Term Insurance Policy.
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