Description

This arrangement provides life assurance cover only pays out if the life assured dies during the term of the arrangement (hence the name). The sum assured (amount insured for) remains the same during the term. At the end of the term, the policy expires and has no value.

Examples of Use

Providing cover for a mortgage or other specific liabilities on death before a set date or alternatively, personal protection for a specific purpose.

Advantages

• Usually the cheapest way of providing life cover in relation to the amount of cover (the sum assured) as it provides protection for a specific number of years as opposed to a policy giving cover over the life of a person. It is also cheaper than other plans that may contain an element of investment.
• The sum assured being paid is not subject to personal taxation.
• Gives protection for those who will lose financially by the life assured’s death (e.g. partner).
• It can be written on the life of one person or on the lives of two or more persons (e.g. husband and wife).

Disadvantages

• The policy has no surrender value during or at the end of the term.
• Medical evidence (medical examination/doctor’s report) may be required and the cost of cover may be increased or unavailable for those in poor health.
• If cover is needed at the end of the term further medical evidence will be required. Poor health may mean an increased premium or cover not being offered.
• No life cover on death outside of the term.

Points of Interest

• Used by those who require cover at low cost. 
• Usually set up under Trust or on what is known as a “life of another” basis. This ensures that for most individuals - benefits are in the right hands at the right time.
• Arrangements that include critical illness can be considered. This will pay out the sum assured if the life assured has a terminal illness with a predetermined number of months to live.