Whole of life
Whole of life policies provide cover for the whole of one’s life, whatever period that may be. Premiums are either guaranteed or reviewable at regular review dates. This type of cover is often used for inheritance tax purposes and, in such circumstances, would normally be affected on a joint life, second death basis and written in trust.
Level Term provides a guaranteed sum assured over a specified period, in return for a premium fixed at outset.
A variant on level term, convertible term includes the valuable option to convert the policy to either an Endowment or Whole of Life assurance, at ordinary rates of premium, irrespective of any change in the health of the life assured. It effectively ensures insurability for life which could prove of particular benefit for someone who finds themselves subsequently uninsurable. This is an excellent additional option where the need for further cover later in life may be required.
Both mortgage protection and family income benefit are forms of decreasing term. Unlike level term, the sum assured reduces over the term of the contract, so is ideally suited where the risk or liability diminishes over time. Consequently, it is the cheapest form of life assurance.
This contract would normally be used to cover a mortgage as the sum assured is designed to reduce in line with repayment of the capital borrowed over the term of the loan. It is important to ensure that the interest rate used to calculate the initial sum insured is based on the interest rate for the loan or mortgage. This is to guarantee that the loan is cleared in the event of a claim.