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.

Life Insurance 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 and decreasing life insurance. With level life insurance, 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 interest only mortgage where the balance of the mortgage remains the same.

As the name implies with decreasing term assurance, the sum assured reduces to nothing over the term of the policy which is usually by equal annual amounts. The most common use of a decreasing term assurance is to cover the balance outstanding on a repayment mortgage. Within the industry this is usually known as a mortgage protection assurance. In this way, the sum assured decreases in line with the mortgage by lesser amounts each month at the start than towards the end.

James Copper is a writer for http://www.any-loans.co.uk where you can find information on life insurance

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