Term Assurances - A Basic Form Of Life Insurance
Term assurance, which is also known within the finance industry as 'temporary assurance', is the most basic form of life assurance. Term assurance is
a pure protection type policy that is arranged over a set period (known as the term). Due to its pure protection nature, term assurance contains no
element of investment and subsequently because of this fact; it also makes it the cheapest form of life assurance.
Term assurance can be arranged for a wide variety of different purposes, both personal and business related. When arranged in relation to business
use, this will usually include the provision of 'Key person insurance'. This type of cover is arranged in order to protect against the loss of profits
resulting from the death of an important employee (or Key man)
When arranging cover, the term can be set just for a few months or even up to 40 years and beyond. The term will usually be set in relation to the
purpose of the cover. For example, if term assurance is used to cover a loan or debt with a repayment term of 25 years then it is likely that the term of
the assurance policy will be set accordingly.
It is important to remember that term assurance contains no element of investment as this is again shown whereby if the life assured survives the term
of the policy, the cover will then cease and no refund of any premiums made will be given. Moreover, there is normally no cash value or surrender
value at any time.
Premiums are normally paid monthly however annual and single premium policies do exist. If premiums are not made within a certain period after the
due date (normally 30 days), the cover will then cease which will subsequently mean that the policyholder will be left with no cover.
There are two main types of term assurance which are level term assurance and decreasing term assurance. With level term assurance, the sum
assured at the outset remains level during the term of the policy. An example of where level term assurance may be arranged would be an