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Life Insurance Explained

Coming to terms with the loss of a loved one is never easy.  Financial difficulties can add to the grief and make coping exceedingly difficult.  Life insurance is vital in helping protect your loved ones from the financial burden.  Among some of the reasons to take out a life insurance policy could include:-

  • Mortgage repayments – ensuring the mortgage is paid off.
  • Replacing the primary earners’ salary – ensuring the family can manage and pay bills.
  • Education expenses – School or Higher Education fees.
  • Childcare – the death of the primary childcare provider could lead to the need for childcare expenses.

Different types of life insurance policy

Level term life insurance – this is the most commonly chosen type of insurance. This type of life insurance will cover you for an agreed amount of time. This is also sometimes referred to as a mortgage life insurance policy. Your policy covers you for the mortgage term and payments decrease inline with the mortgage.

  • Level – The payout you receive doesn’t vary, eg £100,000.
  • Term – You only receive a payout if you die within a fixed term, eg 20 years.

Whole of Life Insurance – Whole-of-life insurance is a type of life insurance that will pay out when you die, no matter what your age. Your loved ones are guaranteed a payout. This policy lasts as long as you do.

Critical illness cover – Critical illness cover or insurance is where the policy provider can pay out a lump sum (one-off payment) if the policy holder is diagnosed with a critical illness.  The policy can be tailored to pay out a regular income.  It is designed to pay off a mortgage, loans or even help with modifications to your home should you have mobility issues.

Decreasing term life insurance – Decreasing term insurance is where you take out a policy typically to cover a repayment mortgage. As the total sum you owe decreases so does the amount of cover and therefore your payments reduce. This is usually the cheapest form of life insurance; you only pay for the cover you need.

Guaranteed or Reviewable premiums – Guaranteed premiums have a fixed monthly premium for the entire term of the life insurance policy. These are popular as they allow for monthly budgeting. The only disadvantage is that they may be higher than reviewable premiums.

Reviewable premiums are typically cheaper than guaranteed. They are reviewed by the life insurance provider on a regular basis. They can increase or decrease depending upon any claims or changes in your personal circumstances.

Initially, reviewable premiums will work out cheaper.  However, over time these premiums are likely to increase.  The provider will take into consideration the customer’s personal circumstances, such as health and life expectancy.  Overall cost may well exceed that of the guaranteed premium. Generally, guaranteed premiums are a better buy in the long run, but if you are on a tight budget the reviewable premium presents a better short-term option.

For more information see our frequently asked questions or complete the form below for a free quote.

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