Make Sure You’ve Got The Right Life Cover In Place Should The Worst Happen
When you buy life insurance, you’re paying for peace of mind. Life cover means you’re protecting your family financially should you die unexpectedly, or were left unable to work.
There are many types of life cover available, with different durations and benefits, and the right one for you will depend on your individual circumstances, such as how much money you want the policy to pay and how much you can afford to pay in premiums. It’s important to do your research before picking a policy.
Whole-of-life cover
This type of policy, as the name suggests, guarantees your dependants a payment regardless of when you die, while other types only pay out if you die before a specified date, also known as ‘term insurance’. This is a better insurance cover for total peace of mind, but it can be more expensive than other types. If you’re looking for lower insurance premiums, you might be better off considering term insurance, of which there are several types.
Level term insurance
This type of cover pays out a fixed lump sum if you die during the policy term. This figure doesn’t change, so you’ll know exactly how much money your dependants will be left with.
Increasing term insurance
Many people will want to take out a policy that factors in the rising cost of living, and this type of policy – also known as index-linked term life insurance – does exactly that. The sum insured will either increase by a fixed amount each year, or will rise in line with the Retail Prices Index measure of inflation. This ensures the sum insured maintains real value throughout the term. However, as the insured sum rises, so will the premiums, so be prepared to pay more as time goes on.
Decreasing term insurance
Also known as mortgage life insurance, this type of product covers debts that gradually reduce over time. You might take out a life insurance policy to cover £150,000 worth of mortgage, but as the mortgage is paid off, you could find yourself ‘over-insured’ – that is, paying more than is necessary in premiums. Decreasing term insurance counteracts this, and you’ll pay lower premiums than you would with other life cover products.
Renewable term insurance
This type of policy offers cover for a fixed period, but can then be extended at the end of the term without the need for further medical checks. Your premiums may increase in line with your age, but any health problems you’ve suffered since the initial policy was taken out will not be taken into account or reflected in the new cost of the policy.
Joint life insurance
Married couples and couples with joint financial commitments or children may want to consider a joint life policy, rather than two single policies, as premiums are usually cheaper. However, these policies are usually written on a ‘first death’ basis, so it will pay out when one person dies, at which point the policy ends, and the surviving party will have to find another policy.
Family income benefit
Family income benefit policies are a type of decreasing term policy, but instead of a lump sum, it pays out a regular income to your beneficiaries until the policy’s expiration date. These type of policies make it easy to figure out how much you need to insure for. If you take home £2,000 a month, you can arrange for that amount to be paid to your family if you die. However, it is duration specific. If you die three years into a 20-year policy, your family would get payments for 17 years. If you died just a year before the policy ends, your family would receive payments for only the one remaining year.
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