A Guide to Life Insurance

1. Why take out Life Insurance?

Quite simply to provide peace of mind and financial security for your loved ones in the event of your death. Death is a taboo subject, but a harsh reality and most of us will know someone who has experienced the tragic loss of a loved one prematurely. This loss can be devastating for the ones left behind, partners, children and family but imagine also having to deal with the loss of your income or even your home. Life Insurance can provide you with that financial security, providing a lump sum payment to pay off a mortgage, loans or replace a lost income, allowing your loved ones to concentrate on rebuilding their lives.

2. Types of Life Insurance

Level Term Life Insurance, also known as Term life assurance, is the simplest and usually the cheapest form of protection. A monthly premium is paid over a set period and guarantees a lump sum payout in the event of the policyholder’s death during that term. The policy will only run for the specified term and if the policyholder is still alive at the end of the period, the policy expires. This type of cover is also available on a joint life basis.

Decreasing Term Life Insurance or Mortgage Protection Insurance is commonly used to cover a mortgage or similar loan. The policy will run over the same period as the loan and the amount of cover will reduce each year as the debt reduces. Again, the policy will expire if the policyholder is still alive at the end of the period. This type of cover is not to be confused with Mortgage Payment Protection Insurance.

Whole of Life Insurance provides a guaranteed payout of a lump sum whenever the policyholder dies, as the policy is not limited to a specific period of time like term insurance. Because there is a certainty that the insurer will pay out at some point, the premiums for this type of insurance can be a lot more expensive.

Critical Illness cover is available as an additional cover and generally will payout a lump sum, equivalent to the Life sum Assured, in the event of diagnosis of debilitating but not necessary fatal conditions such as cancer, heart attack, stroke, multiple sclerosis and other similar conditions. The policy will pay out on diagnosis of the condition, whether the policyholder survives or not.

3. How much cover do I need?

As with all forms of protection, this will depend entirely upon your circumstances and you will need to consider the reason for taking out the cover. These could include:

Paying off a mortgage or Loan
Replacing a principal earner’s salary
Education expenses - If the principal earner died, would you still be able to pay for school fees or university tuition.
Childcare costs - Would you need to return to work if your partner died? If so, would you need to pay for childcare?

4. Taking out Cover

This guide is published for information only and no part of it should be construed as financial advice or recommendation. Before taking out any form of insurance or protection cover, we suggest that you speak to an FSA Authorised and Regulated financial advisor who can explain the cover in more detail and recommend the most suitable product for your requirements.