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Life insurance is one of the easiest ways of providing financial protection for your family should the worst happen.
Choosing the right type of life insurance policy for you and your loved ones can be a challenging task. Luckily for you, we're here to help, and once you've read this, you should be comfortable with choosing an appropriate policy.
We’ll help you understand how life insurance works, as well as the main types of cover available.
So, let’s break it down a little…
With most types of life insurance cover, the policy pays a cash lump sum to your loved ones in the event of your death. This money can then be used to ensure that your family is financially secure for the years ahead.
Once you take out a life insurance policy, you begin paying monthly premiums to your insurance provider. It's important to keep up with these monthly payments, overwise your cover may be ended and your loved ones could be denied a payout when you die.
One of the two main life insurance policies is called ‘term life insurance'. This policy lasts for a set period of time, which is agreed, and pays out a set amount if you pass away in the given period. Term life policies can issue a lump sum payment to dependants and can also cover a fixed debt, such as a mortgage loan. This, of course, would benefit your loved ones if they rely on your financial support.
Level term life insurance in particular ensures the value of your policy and premium costs are fixed throughout the term.
Remember, term life policies only pay out if you die within the policy term. With all things considered, surviving the policy term isn't a bad thing at all. Though in this case, the policy expires and you won't be able to claim back any of the premiums paid previously.
Pros:
Low cost
Flexible policy terms
Fixed premiums and lump sum payments
Cons:
No payout if you survive the policy term
Only covers you for a certain amount of time
‘Whole life insurance' (also known as 'life assurance') is the other main policy which people usually encounter when searching for the right one. Unlike term life cover, this type of policy covers your life until you pass away, therefore, your dependents are guaranteed a payout. Due to the fact that it always pays out, it is usually much more expensive than term life insurance.
There are two levels of whole life insurance cover - balanced and maximum:
Balanced cover ensures the cost of monthly premiums & the value of your pay-out, remain fixed throughout the policy. That way, you can avoid any extra costs that may occur as you get older or develop medical conditions.
Maximum cover offers investment opportunities. Each month, your insurer collects your monthly premium payments, placing them into an investment fund. They will then invest it with the goal of generating a rerun big enough to cover the eventual payout.
Pros:
Guaranteed payout
Fixed premiums and lump sum payments
Investment opportunities
Cons:
More expensive than term life insurance
Risk of investment losses
Decreasing Term Life Insurance (mortgage life insurance): Like term life insurance, this policy lasts a pre-agreed number of years but usually covers the length of your mortgage and then pays out if you pass away during that time. However, unlike term life insurance, each year the potential pay-out decreases as it is meant to be used with a mortgage where the outstanding loan decreases over time. Due to this, this policy is usually cheaper than term life insurance.
Increasing term life insurance: Designed to protect the value of your policy from inflation. To do so, the pay-out value of your policy increases over time. One downside to this is that the cost of your monthly premiums may also increase.
Family Income Benefit Insurance: This insurance pays out a regular income during the agreed time period, rather than a lump sum at the end. Your loved ones will not need to change their standard of living if you match your current salary. Be aware that this policy won't pay out for long if you pass away late in the term of the policy.
You can also get add-ons for an existing life insurance policy such as critical illness cover. This type of cover pays out in the event you are diagnosed with a critical illness or injury.
The money can then be used to cover any income lost, supporting you and your family in these difficult times. However, not every type of illness is covered under critical illness cover. Therefore, be sure to check your policy document to understand what is and isn't covered under your policy.
It is in fact possible to take out more than one policy. Joint life insurance covers two people under a single policy, making it an ideal choice of cover for couples. Not only can they be easier to manage, but they can also save you money, as opposed to buying separate policies.
A joint policy typically works on a 'first death basis'. In this case, the policy pays out upon the first death of either policyholder. Once this happens, the policy ends, so the survivor would need to buy further cover if required.
So, now you understand the different types of life insurance there are, how much life insurance cover do you need?
Mainly, the amount of cover you’ll need depends on your given personal circumstances. This includes how much debt you may leave your family with, and how much you can afford to pay in monthly premiums.
Of course, each person needs a different amount of cover depending on their situation. However, we can outline the main things which may affect the amount you require.
We’re here to help,so if you have any questions about the following, then be sure to contact us.
Covering your mortgage: Most likely, your mortgage repayment is your largest outgoing at the moment. Therefore, you won’t really want to leave your family with this burden if you are the main earner.
With this in mind, a mortgage life insurance policy would be sufficient. It is worth noting that when you work out how much cover you need, it will benefit you to make sure the policy covers both the capital and interest repayments.
Any other loans: Again, just like with the mortgage, you won’t want to leave your loved ones with an unnecessary financial burden, therefore there are different types of policies to choose from which will suit you. It can also pay towards your funeral cost if you have a plan in place.
Childcare expenses: If you have young children, then your presence in the family will be missed, and we’re sure you’ll still want to put Frosties on their breakfast table after you’re gone. It is worth considering that your children may need to be cared for, and this may need covering. Just how much you need will depend on how many children you have and how old they are.
Education fees: It is every parent’s dream for their children to get a higher education and this comes at a cost. There are policies available that will be able to cover your children’s university and school fees.
Replacement of income: It may be the case that when you pass away, your family is less likely to be able to live the same quality of life. There are policies that can cover your family from this loss of income, helping them cover the cost of living. However, this is the hardest calculation to make, as it requires working out how much your family may need in the future.
Of course, life insurance isn’t suitable for everyone, especially those who are single and have no dependents. However, it is something to think about if you will be leaving your family and children with financial burdens, such as a mortgage.
Below are a few instances in which life insurance will be worth it:
If your family/partner relies on your income
If you have children who depend on you
If you have a property which a mortgage still needs to be paid
Even if you aren’t the main earner in the family, life insurance is still worth it. You just need to ask yourself if your family could survive without your financial backing.
Age
Health (including family medical history)
Your life expectancy
The financial impact your death may have on your family
The type of cover you are looking to buy
Plans for funeral
Mortgage and debts
Age of children
Children’s education fees
When you plan on retiring
Taking into account these different factors, our experts can help you find the right policy for you - speak to an adviser.
Our team of expert protection consultants are here to help. Call for a quick quote and more information now:
01392 241 850(Monday to Friday, 10am to 6.30pm)
