The main purpose of term insurance is to provide a lump sum in the event of the life insured dying during the term of the policy.
Various ‘bolt-on’ options are available to meet a wide range of customer needs. The process of buying term insurance involves completing health questionnaires and medical underwriting.
These enable the life office’s underwriting team to assess an individual’s eligibility for term insurance as well as the appropriate premium to charge. Term insurance is, perhaps, the most widely available life insurance product.
Types of Term assurance Policies you will get in Kenyan Market
The policyholder selects the amount of life cover they need (the sum insured) and the amount of time for which they need the cover (the term). They then need to choose the most appropriate type of term insurance policy to meet their needs. The following policies are available:
Level term insurance – this policy has a sum insured which is fixed throughout the term. There are a number of variations on this basic level, as outlined below:
Renewable term insurance – allows the policyholder to effect a term insurance policy for, say, three or five years, at the end of which the policyholder has the right to effect a similar policy for a similar term without having to give the insurance company any evidence that they are still in good health. Renewable term insurance is used when there is a definite initial need for life cover but it is not known how long the need will last.
Convertible term insurance – allows the policyholder to convert the policy to either an endowment or whole of life policy with up to the same sum insured at any time before the end of the term of the original policy without further evidence of health. This is a valuable feature if the policyholder’s need is for additional savings (convert to endowment) or a longer-term protection (convert to whole of life).
Increasable term insurance – provides for the sum insured to be increased regularly (without any evidence that the life insured is still in good health) over the term of the contract. Such policies enable policyholders to ensure that their life insurance maintains its value in real terms against inflation.
Decreasing term insurance – whereas the sum insured for a level term insurance remains constant throughout the term of the policy, the sum insured of a decreasing term insurance reduces each year by a stated amount, decreasing to nil at the end of the term. It is normally used to cover a reducing debt, such as the capital outstanding on a repayment mortgage.
Family income benefit – this is a type of decreasing term insurance policy that is often used to protect a family with young children. Instead of paying a lump sum on death, it pays an ‘income’ intended to replace the income which the life insured would have provided for their family. Although called family income benefit, the policy provides a lump sum payable by instalments for a selected period. This avoids an income tax liability. The ‘income’ is paid each year from the death of the life insured until the policy expiry date.
For all term insurance policies, if the life insured survives until the end of the term there will be no further premiums to pay and no payout from the insurance company. A term insurance, therefore, is a policy which offers life insurance only, with no savings element whatsoever.
This means no surrender value if the policy is cancelled early. Term insurance usually offers the cheapest way to buy life insurance where the need for cover is likely to last for only a certain length of time.
