Life insurance is nothing more than a way of protecting yourself and your family from financial hardship in the event of death or critical illness. What type of life insurance policy (or policies) you need depends on the degree of protection you require.
Compare life insurance policies with our best buysAnother important decision you will have to make is whether you insure only your own life (single life policy), or both your own and your partner’s life (joint life policy). A single life plan pays out on the death of the named ‘life assured’. Some plans also pay out if the life assured develops a terminal illness at least 18 months before the end of the policy.
A joint life plan may pay out when the first of the lives assured dies (joint life-first death) or on the second death. First-death plans are suitable for family cover, second-death plans for providing sums to pay Inheritance Tax bills. Some plans also pay out if one of the lives assured develops a terminal illness 18 months or more before the end of the policy.
The cost of two single life term policies is often only a little greater than one joint life/first death policy and having separate policies does provide more flexibility, especially in the event of separation/divorce.
Compare life insurance policies with our best buysLevel Term Life InsuranceThe most common type of life insurance is known as level term cover. Level term means that the sum assured (the amount your life is insured for) remains constant throughout the term (or life) of the policy – it does not decrease over time like a mortgage protection policy. The same is true of the policy’s term as well as your monthly premiums.
When you take out a level term assurance policy you decide how much to insure yourself (and/or your partner) for and how long you want the cover to last (normally until retirement). There are different types of policy around but those with
guaranteed premiums are best for most people. Having a guaranteed premium means that you can be sure that your monthly payments will not increase during the term of the insurance policy.
Provision of a lump sum from a life policy means your spouse/children can generate a stream of income from investing the money which makes up for the income you no longer provide. Level term life insurance policies can also be used to pay off an interest-only mortgage if you or your partner should die before your mortgage is redeemed.
Compare life insurance policies with our best buysMortgage Protection PlanIf your aim is to simply to make sure that your repayment mortgage is paid off if you, or your partner, were to die then you could consider a dedicated Mortgage Protection Plan. These are also known as Decreasing Term insurance policies. They are designed to pay off a repayment (capital and interest) mortgage. The sum assured decreases each year as your mortgage debt decreases. Finally, when you mortgage is fully paid off, the insurance policy will expire. These policies are most commonly joint life-first death plans so that a couple can be sure that, if one of them dies before they have repaid their home loan, the mortgage will still be paid off.
Critical Illness (CI) cover is the third type of life insurance. CI provides for a lump sum payout in case you are struck down by a critical illness. The aim of CI is to help cushion the financial blow in case you have to take time off work while you recover – or you are in fact unable to return to work at all. You can also get policies that combine life assurance cover and CI. The low-cost option is a policy that pays out the sum assured as either a CI or death benefit; at higher cost, you can have both benefits paid.
NB: It is very important to establish how your insurer defines your ability to “return to work”. The best sort of policy to have is one which defines total permanent disability (TPD) as an inability to return to your ’own occupation’. This means that you should receive the sum assured if critical illness prevents you from either returning to work in your old job or in getting a new one at a similar level in the same industry. Some policies state that you don’t get a payout if you are able to work in any form. This type of policy is obviously far less attractive. Combining critical illness with a life insurance policy provides the greatest degree of protection for your family.
Compare life insurance policies with our best buysWhole of Life insurance (WOL), as its name implies, is cover that lasts for your entire life, as do the premiums (though some policies call a halt to premium payments at age 75). Unlike term insurance, it builds up a capital value, because WOL is sure to pay out a benefit eventually. Though you can buy policies that have a fixed level of premiums, most WOL policies today have reviewable premiums.
Your premiums go into an investment fund and depending on the performance of the fund, premiums may have to rise when they are reviewed, usually at ten-year intervals. WOL is more expensive than term insurance and today is normally used for ‘estate protection’, the main aim being to ensure that funds are available to pay Inheritance Tax bills so that the inheritors do not have to sell assets such as business or houses to pay the taxman.
Compare life insurance policies with our best buys
