Life insurance is a great way to provide financial protection for your loved ones. Learn more about the different types of policy plans available.

Finding the perfect life insurance plan doesn't need to be a long drawn-out process. However, it's important to understand the different types of cover in order to know exactly what you're getting. 

In this article, we'll talk you through the different types of life insurance plans and how to choose the right one for you.

How does life insurance work?

A life insurance policy ensures you are covered in the event of death. Your provider will issue a lump sum payment to your family if you die at any point whilst you are covered. 

This money can support your family with various finances in the difficult times ahead. Like any other type of insurance, you are required to pay monthly premiums for cover, and your policy will lapse should you not pay your premiums.

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Choosing the right plan…

1. Understand the different types of life insurance

There are two main types of life insurance policy plans - whole and term life insurance. Each of these policies differs in terms of length and cost. 

  • Whole life insurance covers for the rest of your life, paying out a cash lump sum to your loved ones whenever you die. Although whole life policies are often more costly than term policies, they provide permanent cover.

  • Term life insurancecovers you for a set period of time (i.e 30 years). The policy pays out a lump sum to your loved ones, providing you die within the policy term. If you survive the term, the policy expires, and you will need to buy further cover if needed.

Other types of life insurance plans include...

Mortgage life insurance

A mortgage is typically one of the most expensive payments you are likely to make in your lifetime. However, when you die, the outstanding balance doesn't just vanish into thin air. Instead, your mortgage provider will expect your family to carry out repayments. That's where mortgage life insurance is an ideal way of protecting your home.

This type of policy is typically known as decreasing term life insurance - which is can help to cover large debts, such as a repayment mortgage. The value of the policy pay-out decreases over time.. 

If you die before the debt has been paid, your family can use the money from the pay-out to clear the remaining balance.

Family life insurance

One thing nobody wants to carry on their mind is what might happento their family if they died at any point. Family life insurance ensures your family is supported financially should the worst happen. 

This type of policy plan pays out directly to your loved ones. It can help them with finances, such as living costs, mortgage repayments, household bills and other future costs.

For more information on the benefits of a family life plan, check out - How family life insurance can benefit your loved ones.

Critical illness cover

Much like death, illness can occur unexpectedly. Critical illness cover is a type of plan that pays out a lump sum in the event you are diagnosed with a critical illness (so long as it meets your provider's definition and specified severity).

Critical Illnesses that may be covered under a critical illness policy include:

One thing to note is that not all insurers cover the same types of illnesses. To understand what's covered, read over your policy documents and get in touch with your chosen insurance provider if you have any questions.

Critical illness  can usually be bought as an add-on to a whole life or term life policy, but can also be purchased as a separate, standalone policy.

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2. Assess how much cover your family needs

When buying a life insurance policy, you need a cover amount that reflects your family's finances. In addition, you should think about the financial impact of your death on your loved ones. You can do this by working out your monthly income and outgoings, to make sure you buy the right amount of cover.

The pay out from your policy can help your family during the difficult times ahead with finances, such as:

If you're unsure how much cover you need or the type of plan that's best for you, we're here to help - speak to an advisor.

Products & Services from the leading financial brands

  • Zurich
  • Legal And General
  • Aviva
  • AIG
  • Beagle Street
  • LVE
  • Royal London
  • Vitality Life
  • Virgin Money
  • Budget Insurance
  • Scottish Widows

3. Choose a policy that matches your budget

When buying life cover, it's essential to choose a policy that fits your budget. If you cannot pay your monthly premiums, your provider will end your cover early. In this case, you won't receive any money back from the premiums paid up until that point. Not having the right amount of cover could result in additional costs later down the line.

If you're looking for affordable life cover, you may want to consider term life policy. You can also buy joint life insurance cover - this protects you and your partner under a single policy. In some cases, it can even work out cheaper than buying a separate policy.

There are a number of factors that can affect the cost of your policy, such as:

In some cases, you may be able to cash out your policy if you can no longer afford cover. However, the amount received may be much lower than the intended pay-out.

For more information, please see: If I can't pay my life insurance premium, what should I do?

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