The last thing any of us wants to think about is our death and life insurance. We are discussing all the life insurance types you could consider today.
But not facing up to its inevitability means you’re dismissing its consequences for your nearest and dearest.
Over two out of three adults in the UK either haven’t got life insurance in place (57%) or don’t know whether they have it or not (11%).
This is according to LifeSearch’s Health, Wealth and Happiness report.
Navigating Your Life Insurance Choices
But life insurance is befuddling. The terminology is confusing. The choices are broad. More, the life insurance type best suited to your family might be hiding in plain site.
Here, we’ll break down the three main types for you to help you decide which life insurance type would be best for you.
With all life insurance, you choose how long you need cover for. In order to benefit from this protection, you pay a monthly premium.
In return, upon your death, a lump sum payment goes to your designated person/s. This money can be used to pay-off your mortgage, cover mortgage repayments, childcare costs, school fees or future living costs if you’re no longer around.
With all of these policies, factors such as your age, health, and lifestyle will decide how much you pay for your premiums.
The type of policy that you choose will depend on what it is you want to protect, your age and budget.
Decreasing-Term or Level-Term Insurance: Simple and Affordable
These are the cheapest and most simple type of life insurance. They are therefore the most popular options for families.
Many people take out this type of life insurance over a 15-25-year term to cover a mortgage debt or protect children until they’re financially independent.
Decreasing Term Life Insurance is designed to cover the cost of re-paying your mortgage if you die within the specified term. As the name suggests the amount your beneficiary receives will decrease over the term of your policy in line with the anticipated decrease in the amount required to pay off your mortgage. It should always pay enough to ensure your family or loved ones are not faced with the problem of having to continue paying the mortgage if you pass away.
Level-term Life Insurance pays out a lump sum if you die within the specified term – for example £300,000 within 18 years. The amount you’re covered for remains level throughout the term – hence the name; and it does not decrease as the mortgage balance decreases. This can provide a lump-sum to your loved ones upon your death as well as paying off your mortgage. However this normally costs more in monthly premiums than Decreasing-term insurance.
Family Income Benefit: Straightforward for Families
This is an alternative type of life insurance that pays your dependents a monthly tax-free income, instead of a lump sum. This can help them with budgeting and give security in your absence.
As with decreasing-term and level-term insurance, the policyholder chooses how long they want cover for. If the policyholder dies during this period, the named dependents would receive monthly payments over the remaining years.
This means that if you took out a 15-year policy and died three years later, payments would continue for the next 12 years.
This kind of cover is good for families because it gives them the essential cover they need. It could be set up to continue as long as the youngest child is in full-time education.
Whole of Life Insurance: Belt and Braces Investment
This type of insurance is sometimes known as life assurance. It is usually the most expensive type of life insurance. It covers you for the whole of your life, rather than a fixed period of time.
You pay into a policy, and the insurer agrees to pay your loved ones in the event of your death, no matter when that might be – at age 30 or age 100.
Whole of life insurance (sometimes called ‘life assurance’) is usually far more expensive for the same size of payout than life cover which just pays out for a set period. However, as well as providing cover up to your death, and not just for a set period, it also has investment value. For instance, you may be able to borrow against the value of your whole of life insurance, which is another reason for the higher cost.
How Much Cover do I Need?
It’s always worth consulting a financial advisor to look hard at your specific circumstances to calculate this all-important figure.
But when choosing your cover, these statistics might help you.
The advice from moneysavingexpert.com is this:
Roughly cover 10 times the annual income of the highest earner till your kids have finished full-time education.
Are you interested in learning more about the right life insurance for you? To have an informal talk about your options, we’ll give you personalised, impartial advice on your remortgage if you would like to contact us here.