02: Term insurance

Level term

Pays a fixed sum if you die during the term. Policies may also be renewable (can be extended at the end of the term) or convertible (to a whole of life or endowment policy), or both.

Decreasing term

As level term, but the sum insured falls each year.

Mortgage protection

As decreasing term, but the fall is in line with the outstanding capital on a repayment (or capital and interest) mortgage. The maths means that the higher your mortgage interest rate, the slower the outstanding mortgage capital falls each year. So, when it comes to choosing this type of policy, make sure the interest rate matches your mortgage (and will go on doing so if the rate rises in future), or that the rate is higher than the interest rate you expect at any time during your mortgage.

Family income benefit

This pays an annual sum if you die during the term of the policy and pays until the end of the term. So, if you died in year one of a 20-year policy, the annual sum would be paid 20 times; if you died in the last year, it would only be paid once. This type of policy can provide the highest initial cover for the lowest cost.Last Updated