Life Insurance

Your Guide to Life Insurance

Life Insurance does what it says on the tin, it’s an insurance policy that pays out a sum of money to your dependents if you die during the term of the policy. If you, or you and your partner are the main bread-winners in your family, then life insurance is more than just a good idea – it’s a necessity.

However, life insurance policies are not ‘one size fits all’. There are a number of different ones to choose from. Our best advice is to make an appointment with a member of our team so we can help you choose a policy that gives you the best possible protection you can afford.

What Type of Life Insurance Policies Are There?

The most common type of life insurance is called ‘Term Insurance’ and like its name, it offers you financial protection for a set period of time. There are three types of Term Insurance and they all have different benefits.

We’ll guide you through each of them to help you decide which would be the best fit for you and your family before you start looking for a life insurance quote.

Level Term Life Insurance

The amount of life insurance paid out remains the same throughout the term. So if you’ve insured your life for, say, £150,000 over 20 years, this is the amount that will be paid out to your beneficiaries if you die at the beginning, middle or end of the term.

It’s ideal if you have young dependents and a large debt such as an interest only mortgage. If you die during the term It will clear the capital you owe on your loan and whatever is left will be paid to your dependents.

Level Term Life Insurance is simple, easy to set up, and affordable for most people.

Decreasing Term Insurance

Cheaper than level term insurance, this type of policy is also known as mortgage life insurance because the potential payout decreases over time and runs alongside a repayment mortgage. It’s designed to pay off the remainder of your mortgage capital should you die during the term of the policy.

Increasing Term Insurance

As the name suggests, the value of your policy goes up throughout the term of the policy because it’s linked to inflation. If you die during the policy term, the amount of money paid out to your dependents will be in line with the cost of living at the time of your death.

As the value of your cover increases, so does your monthly premium, so it’s important to be sure you’ll be able to afford an Increasing Term Policy at the outset.

There are two other types of insurance.

Family Income Benefit

Rather than paying out a lump sum when you die, this type of policy pays a regular income to your dependents. This means your family will be able to cover monthly household expenses, such as food and utility bills without having to bear the sudden loss of your income.

Whole of Life Cover

Also known as Life Assurance, this type of policy pays out whenever you die. As long as you maintain the monthly payments, there is no fixed term.

This could benefit you if you need to make plans for inheritance tax and cover your funeral costs so your family doesn’t have this added expense at a difficult time.

These types of policy are more expensive than term insurance policies.

Do I have to have life insurance?

Sadly none of us know what’s around the corner. It’s possible we know someone who has been diagnosed with a terminal illness, or affected financially by the death of a family member.

While we don’t expect it to happen to us, having a life insurance policy can give us peace of mind that if the worst happens, at least our loved ones are protected financially and can carry on with their lives. Without life insurance your family could find themselves in a very difficult financial position, if you die.

However if you are single, have no dependents, and you don’t have a mortgage, then you may not need life insurance. Although it’s really important to think about the financial impact a terminal illness or your death could have on those closest to you, such as, who would pay for your funeral costs?

You may want to consider cover such as income protection or critical illness cover especially if you are unable to work due to illness. This type of insurance can provide a lifeline for the duration of the original term selected. They can also be built into a life cover policy as extra options to provide total peace of mind.

Thinking Ahead

It’s important to think about what would happen to your family financially if you died suddenly or were diagnosed with a terminal illness. These points will help you decide how much cover you need so you are able to plan ahead.

• Work out how much protection you will need by taking all your monthly outgoings into consideration.
• Think about how the cost of living might impact the value of your policy in 10 to 20 years time. An Increasing Term Insurance may be right for you.
• Which type of payment would your family benefit from the most? If your children are young with only one partner working full time, then a Family Income Benefit policy will pay our regular amounts. However if your children are older and your partner works, then a lump sum to clear a large mortgage debt may be the better option.
• You may need to consider inheritance tax. While a life insurance payout payout is tax free, any money above £325,000 left in your estate will be taxed at 40 per cent. *Source moneysavingexpert.com 21 October 2020
• Finally, remember to include your funeral expenses, which can cost thousands of pounds. Covering your funeral costs at a difficult time for your family will make things easier for them to deal with.
• Once you’ve worked out how much money your family will need to survive, think how much you would need to pay off all your outstanding debt. Then consider the term of the cover you would need.

How much does Life Insurance Cost?

The amount you will pay for your policy will depend on your personal circumstances, the type of policy you choose, your medical history, your lifestyle, and how much you need to be covered for.

The least costly cover is Term Life Insurance. The shorter the term, the less you pay, so factor in the number of years your children are likely to be dependent on your income.

Other factors that will determine how much your policy will cost, is your health. If you have a serious pre-existing medical condition or if you smoke, your cover will cost more.

It’s always good to search the market for insurance cover, however, we can take the hard work out of finding the right policy for you, helping you find one that is personal to you, and delivers the type of cover you need.