Term insurance is a type of level term life insurance that pays out a lump sum if the policyholder dies or gets sick to the point where they won't live much longer. It gives the person who bought the insurance peace of mind that their loved ones will be taken care of financially after they die. Term life insurance can be set up to pay off all loans, including the mortgage, and leave enough money in the bank to support your spouse and children. Term insurance is a good product to have if you don't want your family to have to worry about money when you die, or if you don't want them to have trouble paying for your funeral.
Mortgage insurance is not the same thing as term insurance.
It's important to know that mortgage insurance and term insurance are two different types of life insurance. Term insurance is a type of long-term insurance that you can buy for up to 50 years. During this time, both the insurance premium and the amount paid out in case of death or a terminal illness stay the same.
On the other hand, mortgage insurance is the same length of time as your mortgage loan. The insurance premiums stay the same for the whole life of the product, but unlike term insurance, the amount paid out in the event of death or a terminal illness decreases along with the mortgage loan balance. So, if you only owed GBP2,000 on your mortgage when you died, the mortgage life insurance policy would only pay out GBP2,000.
Terminal illness
Most term life insurance policies cover people who have a terminal illness. The terminal illness clause usually makes the insurance company pay out if the policyholder is given less than 12 months to live because of a terminal illness that is listed on the term policy. In this case, the full lump sum from the term life insurance policy can be paid out to the policyholder or someone who has power of attorney for the policyholder. They can then spend their last months of life with their family without worrying about money.
When a policy for a set amount of time pays out for a terminal illness, the policy is over. So, when the policyholder dies, the life insurance company won't have to pay out anything else.
There are limits on term life insurance
Term life insurance policies have restrictions and exclusions, just like most other types of insurance. The main limit is on payouts to people with term life insurance who get very sick but have not been told they are going to die soon. In this case, a standard term life insurance policy won't pay out unless a critical illness policy has been added to the term life insurance.
