term assurance

Term Assurance 

What is it?

This type of life cover policy provides protection benefits for a defined duration or term. The life company will pay out the sum assured to the policy holder, upon the occurrence of an insured event (typically premature death of the insured) during the duration or term of the policy. The level of cover typically stays the same over the duration of term hence this type of policy is also known as “Level Term” assurance.

Cover ceases when the policy comes to the end of the term. There is no surrender value with a term policy. The purpose of such a policy is to provide protection benefits.

The premium is set at the start of the policy and is guaranteed to stay the same during the term of the policy (unless the policyholder has requested the indexation of benefits).

Do I Need Term Life Assurance?

If you have dependants who are reliant on your income, you should have a term assurance policy, which protects your dependants against the risk of your premature death. The term assurance policy should be seen as a partial replacement for your income, if you were to die prematurely.

The statistics below illustrate the cause of premature death to age 64 years of age in Ireland in 2003.

2003 Number of Premature Deaths % of Premature Deaths
Coronary Heart Disease 860 14%
Stroke 214 3%
Other Circulatory System Diseases 428 7%
Cancer 2,177 35%
Other (Diseases, Poisoning, Accidents) 2,545 41%

» Source Central Statistics Office

What Term Should I Choose?

The minimum term chosen, should be sufficient to cover the period when your family is dependant on you income. This is typically for a period up to when the youngest child has reached 21 years.

How Much Does it Cost?

Premiums depend on; level or value of cover, term of cover, age of lives assured, smoking status, and health status of the lives assured.

Optional Benefits

Indexation – This option allows for the indexation of benefits, which protects the benefits from the impacts of inflation. Premiums will increase by a fixed % per year or will increase in line with inflation.

Convertible – This option allows the policyholder to “convert” the cover provided by the policy into a new policy, at the end of the original policy term. If the option is exercised the conversion takes place without the need for the policyholder to provide any further medical evidence. This option will increase the premium on the original policy by approximately 5%-10%. The premium that would apply to the replacement policy would be based on standard rates on the market at the time of conversion.

Guaranteed Insurability – Some term assurance policies contain guaranteed insurability options. This option allows the policyholder to increase the cover during the term of the policy without any requirement to provide further evidence of health. This is an excellent option for someone who plans to have a family, who can increase the cover when that event occurs. There will of course be additional premium payable when the policyholder exercises their option to increase cover.

Permanent Total Disability (PTD) – This optional benefit pays out the sum assured, on the diagnosis of the life assured being permanently unable to work, due to sickness of disability. This type of cover is typically only available up to age 60 or 65 years. Because the cover is for permanent disablement, payment of a claim is typically subject to a waiting period of between 6 to 12 months. This is to satisfy the insurer that the disability is not temporary.

There are two main types of Permanent Total Disability Cover –

1. Any Occupation Cover – Where the benefit is paid; if the life assured is unable to carry out any work, in any occupation.

2. Own Occupation Cover – Where the benefit is paid out; if the life assured is unable to carry out work in his/her own occupation. This type of cover would be more costly than any occupation cover.