Getting the right life insurance policy means working out how much money you need to protect your family or dependants. This sum assured should take into account your living costs, as well as any outstanding debts/loans, such as a mortgage. We hope this guide helps you understand the different types of policy available and will allow us to provide you a quotation of how much it will cost to provide the cover you think you need.
All quotations are not guaranteed and are subject to underwriting which could increase the costs where health and occupation are determining factors. Indeed for some people it may not be possible to provide such protection where their health is poor.
Choosing the right type of life insurance
Level Term Assurance
Your policy lasts for a pre-agreed number of years and pays out a set amount if you die within that term. This type of policy can either cover a fixed debt, such as a mortgage, or provide a lump sum for your family or dependants in the event of your death.
Benefits: Easy to understand, low cost for most.
Potentially best for: People with children and or dependants and those with an interest only mortgage.
Decreasing term insurance (also known as mortgage protection)
Again the life cover policy lasts for a pre-agreed number of years, which usually matches the length of your mortgage, and pays out if you die during that time. Each year the potential pay-out (sum assured) decreases. It is designed to be used with a capital and repayment type mortgage where the outstanding loan reduces over time. This means that this type of policy is lower in cost than the level term insurance option.
Benefits: Low cost for most.
Drawbacks: May not fully cover a mortgage balance where the mortgage term has been extended or the mortgage itself has increased due to extra borrowing.
Potentially best for: People with a repayment mortgage whose dependants can cover other expenses.
Family Income Benefit Insurance
This is similar to level and decreasing life insurance (see above), other than it pays out a regular income for the remaining policy term as opposed to a lump sum payment. If you want the cover to match your current or future take-home pay for example, you can help to ensure that your family will not need to change their standard of living if you were to die.
Benefits: Low Cost for most.
Drawbacks: Where salary increases over the years the income benefit will need to reviewed on a regular basis to make sure it matches the needs of the family.
Potentially best for: For people whose dependants may suffer financially if the main earner dies.
Whole of Life Insurance
This type of policy covers you for the rest of your life so your dependants get a pay-out no matter when you die, providing the premiums are maintained. This type of policy is generally more expensive than policies that cover for a specific time period.
Benefits: Pays out to your dependants as long as you keep up with monthly/yearly payments.
Drawbacks: More expensive than fixed term policies.
Potentially best for: It is generally used to provide money to cover a funeral or for Inheritance Tax Planning – To find out more about Inheritance Tax Planning view our bulletins or send us an enquiry and we will be happy to discuss this with you.
Should you get a Single Life or a Joint Life policy?
A ‘Single life’ policy covers just one person. A ‘joint life’ policy covers two people and when one person on the policy dies, the money is paid out and the policy ends, although we can look to provide additional cover to the survivor if needed.
It is important to decide whether a joint policy pays out on first or second death as this will determine when the policy ends.
When choosing between these options we recommend you think about:
- Affordability – A joint life policy is usually more affordable than two separate single policies. That said two single life policies will mean two payments where both parties die. Why not look at both options, just ask us and we can help you decide.
- Cover needs – Do you both have the same life insurance needs, or would separate policies with different levels of cover be more suitable?
- Work benefits – If one of you has cover at work ‘Death in Service Benefit’, you might only need one plan, but care is needed if you then change jobs.
- Health – If your joint policy is with someone in poor health, this may increase your monthly payments. It is again worth looking at all options, submit your enquiry and we can help you.
When applying for any type of insurance, including personal protection, it is very important to disclose any requested or relevant information as failure to do so may adversely affect any future claim.
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