If you have a partner or children depending on you to provide an income you probably need life insurance, since it will help provide for your family in the event of your death.
But do you have the right type of life cover?
At Continuum we are looking at the various types of cover to help you decide what is right for you.
Life assurance – or life insurance?
To start at the beginning, life assurance and life insurance are not quite the same thing. Both provide cover in the event of your death, but they work in different ways.
Life assurance, or ‘whole-of-life cover’ can last for the rest of your life. The monthly premiums are relatively high because insurers know that they’ll have to pay out the pre-agreed amount eventually. Premium costs are determined based on your circumstances and the level of cover you need; your premium is locked in at the time of purchase, so it won’t change while you own your policy. Some plans keep you paying until you die, but others have a payment cut off point – often around 85 or 90 years of age – after which you no longer need to pay.
The lump sum from a life assurance policy can be written in trust, which means that it will be received tax free. This can make it ideal to help beneficiaries pay off inheritance tax.
Life insurance or ‘term insurance’ is designed to ensure that your dependents will be looked after if you’re no longer there to provide for them yourself. Term life insurance policies are taken out for a set period. You may decide to buy term insurance to cover your key working years, when you have dependents who rely on your income or with the date you plan to pay off the mortgage.
If you die, your life insurance provider pays your dependents an agreed lump sum. There’s no lump sum if you survive to the end of the policy term.
The amount paid out depends on the level of cover you buy. You decide how it is paid out and whether it will cover specific payments, such as mortgage or rent, or used to help replace your income.
There are many variations on basic life cover.
Pension Term Protection covers the period of time up until your retirement. If you die before retirement, the policy will pay out so that your dependents are cared for financially. Tax relief is available at the marginal rate of tax on the premiums you pay, as the plan is structured as a pension product.
Mortgage Protection Insurance (MPI) is designed to provide a lump sum benefit, which on death of one of the lives assured during the policy term may help secure the ownership of your home. Mortgage protection may be compulsory with some lenders if you are buying your home.
Cover can be arranged to increase over time – to compensate for inflation, or decrease, to reduce the cost as less cover is required to pay off a mortgage.
There are also types of cover which a can be added to the basic life policy.
Critical illness cover provides a tax-free, cash lump sum to you if you are diagnosed with a specific serious illness and a lump sum payment to your family if you are unable to work. This type of policy can cover more than one person and the level of cover can be increased at times when needed. Cancer Cover is another option. It focuses only on cancer and therefore it’s cheaper than Critical illness cover.
Personal accident insurance covers you in the event of a serious injury, which prevents you from working. This cover provides you with a regular income to support you and your family financially.
Income Protection pays you money each month if you are ill or injured and can’t work, until you are fit to return to work again. If an illness or injury stops you working, you need time to get better.
Time to review your cover
With so many options available, sound advice is vital to ensure you have the protection that’s right for you – and at the right price. If you have cover in place, it could be time to review it and if you don’t, it is almost certainly time to start.
Remember, the cost of life cover will vary with factors including age, health and occupation. The younger you are when you take out cover, the less it can cost to get the protection you need. It can also vary greatly between providers.
We can give you individual expert advice from an adviser who will help you set up the cover you need – and pay less for it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products, you should seek independent financial advice before embarking on any course of action.
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