Click here for free Life Insurance Advice

What is Life Insurance?

Life Insurance is probably the type of cover most people are familiar with. The policy will pay out an amount of money, the “Sum Assured” upon the death of the insured person. In the case of a joint policy the money will be paid to the surviving policy holder, otherwise it will form part of the deceased’s estate and will be distributed according to their will.

Surprisingly, Life Insurance is often the last type of insurance that people consider taking out. In fact, research has shown that a higher number of UK residents actually have pet insurance than life insurance. It is your income that pays for your pet’s insurance, not to mention your mortgage payments, utility bills, children’s clothes and food so the first insurance you take out should be on yourself. After all, who will pay for Spot’s insurance if your income is lost?

Why do I need Life Insurance?

A Life policy gives you the peace of mind that your family will be looked after if you should die. They may struggle financially if your income is lost and so a lump-sum in the bank may allow them to get back on their feet and readjust should the worst happen.

Click here for free Life Insurance Advice

What are my Options?

Single or Joint

A policy can be set up in just your name or jointly with someone else such as a spouse, partner, family member or friend. If it is set up in just your name you can choose your beneficiaries in your will, otherwise the money will be paid out according to rules of intestacy.

If set up as a joint policy, it will pay out upon the first death and will pay out to the survivor. The policy will only pay out once so the survivor would then need to take out a new policy if they wished to continue to be covered. Joint policies are a good way of ensuring that your spouse or partner can pay off your joint mortgage should you die.

Sum Assured

This is the amount of money that will be paid out on your death. The pay-out can be used for any purpose but commonly policies are set up to provide enough cover to pay off the mortgage and any other debts so that you know your family’s home is safe if your income is lost. You may also choose to add an additional amount on top to provide some money to live off for a while, or to pay for your children’s education.

Policy Term

A “Term Policy” will last for a set period of time, after which the policy will end. If you are taking out a policy specifically to protect your mortgage for example, you would choose a policy term that matches your remaining mortgage term.

You can also opt for “Whole of Life” cover which has no end date and will last until the day you die assuming of course that you continue to pay your premiums. The cost of these policies tend to be a lot higher than a Term Policy.

Level or Decreasing

If you are taking a policy to protect a repayment mortgage, then a Decreasing Term Policy will be the best choice. The amount of cover will reduce each year as your mortgage is paid off, meaning that you are not paying for more cover than you need. Level Term cover, by contrast, will remain constant throughout the policy term, although the premiums will be higher than for an equivalent decreasing term policy.

There is another option which is “Indexed” cover. This is similar to Level cover, however the amount of cover is adjusted each year to take inflation into account meaning your pay-out will always be worth the same in real terms.

Click here for free Life Insurance Advice