Term assurance is a policy that pays out a lump sum in the event of death occurring within a specified period.
Term assurance has a variety of uses, such as ensuring there are funds available to repay a mortgage in case someone dies, providing a lump sum that can be used to generate income for a surviving partner, or providing funds to pay any tax that might become payable on death.
When taking out life cover, the individual selects the amount they wish to be paid out if the event happens and the period they want the body to run for. If they die when the cover is in place, a lump sum will be paid out that equals the amount of life cover selected. With some policies, if an individual is diagnosed as suffering from a terminal illness that is expected to cause death within 12 months of the diagnosis, then the lump sum is payable at that point.