Why do I need life insurance?
Nobody likes thinking about death but in this day and age it is a discussion that you need to have. It is important to make sure that your family are taken care of if the worst should happen.
Life insurance cover takes the stress out of an already stressful situation. If you have a partner, children or someone who relies on you for help or income, then you should consider life insurance. If you earn an income which helps with household bills, either as a sole breadwinner or as part of a couple, then without that money the family may struggle to pay bills like the mortgage or rent. If you work part-time, or are a home-maker, your family may find it hard to cover the cost of childcare if you were no longer around. So anyone who has dependents should consider taking out life insurance.
It could also be important if you have any debts, loans or an outstanding mortgage on your home. Life insurance could pay out a lump sum if you die during the policy term and this could be used to help pay off these debts. It could help your family with every day living expenses, child care costs or could help cover funeral expenses.
What types of life insurance are available?
The most basic type of life insurance is called term life insurance, where you choose the amount you want to be insured for and the period for which you want cover. If you die within the term, the policy pays out to your beneficiaries. If you don’t die during the term, the policy doesn’t pay out and the premiums you’ve paid are not returned to you.
There are three main types of term assurance to consider – level-term, decreasing-term and increasing-term insurance.
Level term insurance is a type of term life insurance policy that pays a pre-determined death benefit with a face value that remains the same throughout the term of the level term insurance policy. For example, a 10-year, £250,000 level term insurance policy would pay £250,000 upon the policyholder’s death anytime during the 10-year term.
Decreasing Life Insurance is designed to help protect a repayment mortgage, so the amount of cover reduces roughly in line with the way a repayment mortgage decreases. Meaning your loved ones could continue to live in the family home without worrying about the mortgage. You may want to check that the length of the policy is long enough to cover the duration of your mortgage term. If you decide to have Decreasing Life insurance you must also check that the interest rate applied to your mortgage does not become higher than the interest rate applied to your policy.
Increasing term insurance means the amount you’re covered for increases over the term of the policy, to keep up with inflation so that your family can make the most of your payment.
As the name suggests, whole-of-life policies are ongoing policies that pay out when you die, whenever that is. Because it’s guaranteed that you’ll die at some point (and therefore that the policy will have to pay out), these policies are more expensive than term assurance policies, which only pay out if you die within a certain timeframe.