To allow you to choose the best option for you we provide 3 routes to apply...
Typically, a life insurance policy pays out a cash lump sum to your family in the event of your death. The amount your family receives is determined by how much cover you chose to take out. The type of policy you choose also affects how the policy pays out. For example, whole life insurance covers you permanently.
However, term life policies only cover you for a set period of time, known as the policy term. In this instance, your family will only receive a pay-out if you die within the policy term. If you outlive the term the policy expires, and you won't receive a return for premiums previously paid.
Once you take out a life insurance policy, you begin making monthly payments to your provider, known as premiums. These premiums carry out until the end of your policy. If you become unable to fulfill these payments your insurer may end your policy early. In this case, you won't receive any compensation for the premiums paid up to this point.
You have children: Life insurance can provide your children with financial support while they are growing up if they can’t count on your income.
Leaving a legacy: Life insurance is a good way of providing your loved ones with inheritance money when you pass away.
Your home: A payout from your life insurance can allow your family to pay off the mortgage after you pass, relieving them of a heavy financial burden.
Funeral costs: A life insurance payout can help out your loved ones with the funeral costs, providing them with a lump sum.
If we boil it down, there are really only two types of life insurance policies; “term insurance” and “whole-of-life”. Below is an easy to digest breakdown of the two:
Term life insurance has three levels of cover:
Level term - both the pay-out value and premium rate is fixed throughout the policy length.
Decreasing term (also known as mortgage life insurance) - typically taken out alongside large payments like a mortgage. The payout value of your policy decreases over time.
Increasing term - the payout increases over time to protect the value from inflation.
If you're looking to take out cover for both you and your partner, you should consider joint life insurance. A joint policy provides cover for two people under a single policy and can often work out slightly cheaper than taking out separate policies.
Joint policies typically work on a first death basis in which the policy pays out after the first death of a policyholder. The coverage then ends meaning the surviving party would need to buy further cover if required.
Learn more in this article - how does joint life insurance work?
Although the pay-out from a life insurance policy is considered tax-free, it can still be liable under inheritance tax. Providing the value of your estate fulls under the inheritance tax threshold (£325,000 - correct for 22/23 tax year) the pay-out value will be protected from inheritance tax purposes.
However, if the value of your estate is above the IHT threshold, there is one way you can help to protect your policies pay-out amount. This can be done by writing your life insurance policy in trust. In this instance your policy - including the pay-out amount would belong to the trust and not your estate. This way your family can receive the full pay-out amount, voiding a bill for inheritance tax.
Learn more about writing your policy in trust.