Term Assurance is one of the most popular types of life insurance. This type of cover will pay out a tax free lump sum in the event of your death within your chosen term.

You can use term assurance policies to pay off a mortgage debt, or set them up to pay a lump sum to beneficiaries until you reach 65, or your children reach 21 for example.

You can set up Term Assurance policies with a partner; they can be arranged to pay out once when one of you dies or once when you've both died. However, if you want to cover both yourself and your partner, separate policies are usually better value and are more flexible.

Term assurance policies do not have a surrender value at any time and will not pay out beyond your chosen term.

Depending on the intended beneficiaries and your financial circumstances, Term Assurance polices should normally be written in trust for several reasons:

Speed: Life insurance policies written in trust are paid out very quickly because they are not included in the probate process. The probate process can take six months or more. This is not helpful if the policy was designed to help your surviving partner or children pay the mortgage.

The Beneficiaries: Writing the policy in trust will ensure that the money does in fact go to the intended recipient/s: Wills can be challenged in some cases and if you die without a valid Will then your estate will be divided up according to the complex laws of intestacy rather than your wishes.

Inheritance Tax: The money will not normally form part of your estate if it's written in trust, potentially saving your beneficiaries up to 40% of the payout.

A note about Whole of Life policies

The big difference with Whole of Life policies is that they will pay out the sum assured when you die, whenever that happens. Because the payout will definitely happen sooner or later they are more expensive than Term Assurance. Unlike Term Assurance, whole of life policies normally have a surrender value.

You can surrender a Whole of Life policy at any time and the Life Company will pay you a proportion of the lump sum benefit depending on when you surrender them. In this sense they combine an investment element with life cover. They will not, however, pay you a very big proportion of the death benefit in the early years. 

We don't generally recommend using whole of life polices unless there is a need to pay a specific guaranteed sum in the event of your death, whenever that occurs. An example of this might be to settle a future projected inheritance tax liability. The policy in this case should of course be written in trust.

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Life insurance is considered to be one of the highest priorities in financial planning terms. So it's worthwhile giving some proper thought to how you or your partner would cope if either of you died prematurely, especially if you have children. The financial consequences are likely to be more serious than loosing your house to fire and most people wouldn't dream of not covering this risk!

Life insurance policies can be surprisingly inexpensive,  £10 per month or even less in some cases.