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Many of us live day to day without thinking about what we would do if the unexpected happened. But how would you or your family cope financially if you were to lose your job or become ill?.
Without a life insurance policy, your loved ones could struggle to pay the bills or maintain their standard of living. Life cover is not simple and there are big differences between the types of cover and the size of the premiums. It’s important to understand the different types of cover available which our advisers can help with.
Life assurance will pay out a lump sum or fixed regular income either when you die (if a whole of life policy) or if you die within a specified term (term insurance). Some whole-of-life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.
This is the simplest and cheapest type of life assurance, and is known as term insurance because you choose how long you're covered for, say, 10, 15, or 20 years (the term).
It only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can take out term assurance in joint names, but the policy only pays out once on first death.
There are different types of policy you can have:
- family income benefit (a policy which pays out income rather than a lump sum)
- decreasing policy (where the level of cover falls over the years)
- level term ( where the cover remains the same throughout the term )
Decreasing term insurance is often linked to a repayment mortgage (where the amount you owe decreases over time) and may, in this instance, be called mortgage term insurance or mortgage protection life insurance.
It may be that your policy should be written in trust and your adviser will discuss this with you
Whole-of-life insurance pays out an agreed sum when you die, whenever that is, as long as you are still paying the premiums
What will it all cost?
Whole of life policies will cost more than term insurance policies because they will definitely pay out as they are not designed to run for a stated number of years,. They also generally contain an investment element.
Term assurance is generally cheaper as the cost of depends on the likelihood of the insurer having to pay out – so if you're a smoker, in poor health, or lead a dangerous life style the cost of your life assurance will be more than a non smoking, healthy office worker for example. Life insurance also costs more for men because, on average, they have a shorter life expectancy than women.
Always compare the cover offered by a policy not just the price. Cheapest is not always best!