Life insurance is a good way to provide for your dependents if you die. However, navigating life insurance can be difficult, so we’ve put together a short
guide to help you make the best decision for you.
Types of Life Insurance
There are two basic types of life insurance, term insurance and whole of life policies.
Term Insurance
Term insurance is the most basic insurance. You choose the amount you want to be insured for and the period you wanted to be covered for. If you die within that term, the policy pays out, if you don’t die within the period, then the policy doesn’t pay out and your premiums are not returned to you. There are two main types of term insurance, level term and decreasing term.
A level term policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains the same throughout the term. The monthly premiums will also stay level too. This is a good option for families and if you need a certain amount of cover for a certain amount of time.
A decreasing term policy pays out less and less over the term of the policy. This is a good option if it is used to cover debt that decreases over time, such as repayment mortgages. This type of life insurance is usually cheaper than a level term policy.
A family income benefit policy is a decreasing term policy that pays out a regular income to the beneficiaries until the policy’s expiry date if you die.
This income is fixed, so if you die 20 years before the end of the policy, your family could get a pre-agreed sum of £1,000 a month for 20 years. However,
if you die 3 months before the end of the policy, your family will still only get £1,000 for 3 months.
Whole of Life Policies
Whole of life policies pay out whenever you die. These policies are usually more expensive than other types of life insurance because you are guaranteed to
die at some point and the policy is therefore guaranteed to pay out.
How to Make Your Policy Work for You
– Make sure your life insurance covers your main debts and outgoings, such as mortgages and credit card debts.
– Consider putting your life insurance policy in trust. This means that any pay outs on your policy are not subject to inheritance tax.
– Regularly review your life insurance and amend it if your circumstances change, such as the birth of a child.
– Don’t go with your mortgage lender. They often inflate prices because they make it seem like you have to get life insurance with your mortgage lender to get a mortgage. This is not true, look elsewhere for a better deal.
– Take the advice of a broker. Someone like Active Brokers can take a look at the market in detail and find the cheapest and best option for you.
– Don’t get joint life insurance. It is often significantly cheaper, as well as better cover, to get separate life insurance. It also means that if one partner dies, then the other can keep their policy.
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