It is important that when choosing term life insurance cover, you fully understand what the cover entails. There are different types of term life cover and many insurance providers sell life insurance using technical terms, which has your head reeling. This may lead to you not taking out the most suitable life cover for you.

Here are the different types of term life insurance:

• level term insurance;
• decreasing term insurance – also known as mortgage protection life cover.

Level term life insurance
Level term life insurance cover is often a very popular choice of life insurance cover. When choosing this type of policy the potential policy owner has to decide:

1. how much cover they want;
2. how long to take the policy over;

The sum of money you choose to insure (known as the ‘sum insured’) is the cash lump sum that your loved one gets back in the event of your death. The length of the policy is the amount of time you need life insurance and is the length of time you pay premiums.

For example, if you choose to insure your life for £100,000 and take the policy over 10 years, your policy pays out this sum of money anytime during the 10 years if you pass away. Of course, you do have to maintain the premiums for your term life insurance cover over this time. If you outlive your policy – ie you are still alive when the term is up – the policy expires and there is no payout.

Decreasing term insurance
The name of the insurance may provide you with a hint as to how it works. You decide how much you want to insure your life for and over how many years, as with term insurance. However, the big difference with this policy is that the amount your loved ones receive on the event of your death decreases, as time passes. This type of cover is typically used to ensure that any outstanding mortgage balance is cleared in the event of your death, leaving your loved ones with a roof voer their heads.
For example, if you have a mortgage with an outstanding balance of £70,000, and you wish this mortgage to be paid off if you die, you will take life insurance for this amount. If you have 10 years left to pay on the mortgage this is the length of time you take life insurance over.

Over the years as you meet your mortgage repayments the amount outstanding on your mortgage decreases and so does the policy sum insured.

Critical illness cover
When taking level term insurance you may also wish to include critical illness into your policy. This form of insurance typically pays out a lump sum if you are diagnosed with a critical illness. A policy typically covers a wide range of illnesses, but as this can vary among life cover providers, when taking this type of policy it is essential to check what is and is included within the cover.

Term life insurance cover of any type may be taken as either a single or a joint insurance policy. If you decide to take out a joint policy the policy typically pays out upon the first event occurring which is either death or critical illness.

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