Which type is right for you?
When it comes to life insurance the sheer number of options can become daunting. The main types of life cover we will cover are:
Mortgage protection or Life only decreasing term assurance
Level term assurance
Increasing term assurance
Family income benefit
Whole of life cover
These policies can be set up for either a single person or for a couple on a joint policy. The type of policy that suits you may change throughout your life so this should be regularly reviewed to ensure any policy still fits your needs. Speaking to an adviser is the best way to do this as any aspects of a policy you might not fully understand can be explained to you to ensure that it is still fit for purpose.
It is important to consider your budget when considering your life insurance. While it may make sense to take out all the policies listed above as this may offer the most comprehensive cover for all eventualities, this may not fit within your budget. The best way to decide on the best cover to suit your budget and needs is to speak to an adviser as they can talk you through different options and what to prioritise. There may even be ways an adviser can suggest to package different cover together to make it more cost-effective when comparing the same cover under separate policies.
Mortgage protection or decreasing term assurance is the most basic form of life assurance for anyone with a mortgage. The policy is set up with cover and an overall term to match your outstanding mortgage. Over the lifetime of the police the amount of cover will decrease in line with your mortgage in order to make sure should the policyholder die the mortgage will always be cleared. It is important to understand though that this will only happen as long as your mortgage rate does not rise above the rate set out by the insurance provider that they will cover up to. Level term assurance is a little bit simpler as you set out an amount you would want to be paid out on your death which will not change for the lifetime of the policy unless stated otherwise which is where increasing term assurance comes in, however, this would mean your premiums would increase as set periods. Lastly, it is important to consider critical illness cover with any of these policies or as a standalone policy. When it comes to critical illness some people can feel like it becomes a bit of a minefield with all the different things each provided will and won’t cover. This is where professional advice can help navigate what a policy will and won’t cover. If there is a specific illness you feel more concerned about over others an adviser can steer you in the right direction of who would best fit your needs. As simple as term assurance may seem, as you can now see, it is important to ensure any policy covers all of the aspects you need and this is why we always recommend you speak to an adviser who can make sure the policy fits all of your requirements.
Family Income Benefit
Sometimes a more cost-effective way to ensure that your family is going to be ok if they were to lose you is choosing a family income benefit. With term assurance you are asking a provider to pay out a lump sum all in one go, with a family income benefit plan, you are only asking them to replace an income into the household per month which usually means this type of policy can be purchased for a lower monthly premium. The general idea with these types of policies is that for a term you select should you die, your family will receive monthly payments to replace what you are no longer able to provide for the household, allowing them to go on with the lifestyle they are used to without worry of the lost income. Again, there are many aspects to these policies that can become confusing in order to make sure it properly suits your requirement such as indexation which will ensure that the monthly amount your family will receive will increase over the term of the policy in line with inflation so it is important to take professional advice before putting a policy in place.
Whole of Life
Whole of life insurance while generally the most expensive option can provide a great deal of benefits maybe not suited to the other types of life policy. With whole of life instead of only being insured for a set term, you are insuring yourself until your dying day, whenever that be. One of the biggest benefits of a whole of life policy is to help your family by planning for an inheritance tax if your estate is going to exceed the threshold. You can take whole of life cover in two ways, as balanced cover which guarantees your premium and pay-out amount, or as maximum cover where the insurer invests the premiums you pay each month in the hope the returns generated are enough to cover the selected pay-out amount. While these usually mean cheaper premiums to start with compared to balanced cover, you run the risk of the insurers' investment underperforming and eventually paying more than what you would have with the balanced cover. Due to the complexity of whole of life cover and all the benefits it can provide we heavily recommend you speak to an adviser first to ensure the policy is suited to you and will provide you with all the benefits you are looking to receive.