No one likes to think about life insurance as it makes you face your own mortality and leaving loved ones behind.
The truth is, it is important to consider the realities of what would happen to your family and dependents should the worst happen. Given life insurance cover starts from as little as £5 per month the importance of having adequate life cover cannot be ignored.
What is life insurance?
Life insurance cover is designed to pay a cash lump sum to your family or financial dependents in the event of your death. If you have debts, a mortgage or other financial commitments, having life assurance cover could be vital to enable your loved ones to manage financially. Advantages of cover include:-
- Paying outstanding debts,
- Paying medical expenses and funeral expenses;
- Paying your children’s education;
- Covering your lost income.
Types of life assurance policy
There are two types of life insurance – term life insurance and whole of life cover. Term life insurance pays out on death and is always the same irrespective of how long the policy has been in place. With a decreasing term life insurance policy, also known as mortage life cover, the cash lump sum decreases with the duration of the term. Thus, the longer the policy is held, the lower the payable sum will be, whilst falling in line with the decreasing amount outstanding on the policyholder’s mortgage.
There is also family income benefit to consider – an alternative life cover which pays a regular tax-free income should the policyholder die within the term of the policy.
There are several other types of life cover worth considering:-
- Renewable term life insurance – a life plan that allows you to renew your term free of medical underwriting
- Increasing term life insurance – the value of the pay-out increases with the life of the policy, taking into account inflation and events such as marriage and childbirth;
- Guaranteed premium life insurance – a whole of life plan that gives the security of fixed premiums throughout the life of the policy;
- Reviewable premium life insurance – a whole of life policy but with premiums that are reviewable at pre-set intervals throughout the policy.
- Convertible term life insurance – this is beneficial if you want to begin with a cheaper term life plan and then switch to a longer-term whole of life plan;
Comparing life insurance cover
When choosing the best life insurance policy the starting point is to think why you need cover. For example – do you want a policy that covers your family, your mortgage or both? Then consider the amount you want to insure (the ‘sum assured’). This entails balancing what you can afford in terms of monthly premiums against the amount of financial liabilities which your dependents would have in the event of your death. Getting the right life assurance balance is essential. Have a look at our life insurance calculator for guidance on how much cover you may need.
Comparing life insurance to pay your mortgage
If you have a mortgage then a policy to cover the amount outstanding on your home loan if you were to die before it’s paid off would be of benefit. If you have an interest-only mortgage and you are only paying the interest on the capital borrowed, you are likely to require a level term life insurance policy. With a level term insurance policy you will get the same amount regardless of when during the term a claim is made, with usually enough to cover the outstanding mortgage debt assuming you have an appropriate sum insured.
However, if you’ve got a repayment mortgage and are paying off the capital sum and interest, then a decreasing term life insurance policy would be more appropriate, as the amount paid out decreases in line with the balance of your mortgage. The advantage of a decreasing term life policy is cover is generally more affordable than a level term plan as the potential pay out reduces over time.
Comparing life insurance to cover your family
Children are a huge financial commitment. There is the cost of on-going education and even university to consider, This could have a devastating financial impact on their future. When taking out life assurance to protect your family it is adviseable to opt for a level term policy as the benefit is the same throughout the entirety of the policy.
When comparing life insurance cover, variables to think about include:-
- Your budget– if you need substantial life cover then the sum assured will need to be enough to cover your needs. Unfortunately, the higher the sum assured, the bigger your premium will be. Realistically, finding the right life insurance cover for your circumstances may depend on how much you are willing to pay for.
- The amount of life cover necessary – this depends entirely on how many children you have and what plans you have made for them – i.e. a university education or whether they are privately educated etc. If you are also looking to cover your mortgage and replace your income in the event of your death, then you will need higher cover;
Compare life insurance quotes
The cheapest life cover starts from around £5 per month, but the appropriate life policy for a young family would be inappropriate for a retired couple. That is why it is crucial to obtain life insurance advice that takes into account your circumstances before you buy.
Our service is completely free. Our expert life assurance advisors are trained to find the right type and amount of cover for your circumstances. We also perform a whole of market comparison to find best possible life insurance quotes for you. We are independent advisors, which means our target is to find the most suitable life insurance cover for you, not to sell you a plan from a provider who we are affiliated to.
To get started – just fill in the form to the right and we’ll do the rest.