Term Life Insurance

Term life insurance is the simplest and usually the cheapest form of life insurance. If the insured person dies within the term, the policy pays out. If they survive the term, the cover ends and nothing is paid, much like car or home insurance.

People often buy term insurance to cover financial obligations that last for a specific period, such as a mortgage or the years until children become financially independent.

For example, a 35-year-old parent might buy a 25-year term policy paying 300,000, so that if they die before their children finish their education, the family can pay off the mortgage and cover living costs.

There are variations. Level term pays the same amount throughout. Decreasing term pays less over time and is often matched to a repayment mortgage. Some policies allow conversion to permanent insurance or renewal at the end of the term, usually at higher premiums.

Because premiums are based on the risk of dying during the term, they are cheaper for younger, healthier people. Term insurance does not build up a cash value, unlike whole life insurance, which is why it costs much less for the same amount of cover.