Life Insurance Explained

Life Insurance comes in all shapes and sizes and the range of different options available to you can seem endless. The most important thing to consider at first is why you are looking for Life Insurance.

Do you have family that depend on you for financial security?

Do you have a mortgage that your family would struggle to repay without you?

Does your family have spare savings to pay for essential funeral costs?

Whatever the reason, there are different Life Insurance products available to you that can provide you the cover that you need. Below we detail the types of cover that are currently available and explain who could benefit from the cover.

Level Term Life Insurance

Level Term Life Insurance provides financial protection for your family should you pass during the term of cover that you choose. The policy is activated with a specific sum assured based upon your needs that remains the same throughout the term that the policy is active. Level Term Life Insurance is ideal for those who have Interest Only mortgages or those who simply want to know that their family will receive a set tax-free lump sum upon their death.

Decreasing Term Life Insurance

A Decreasing Term Life Insurance policy provides financial security to your family in the event that you pass during the policy term. The sum assured that you choose for the policy decreases on a monthly or annual basis, much like a mortgage would. Decreasing Term Life Insurance policies are primarily used by individuals who have Capital and Repayment mortgages, who feel that their family could use help with paying off the mortgage in the unfortunate event of their passing.

Increasing Term Life Insurance

With Increasing Term Life Insurance you will find that the sum assured of the policy increases every year in line with RPI, for the duration of the policy term. This type of policy suits people who want to ensure that the policy payout that their family receives will retain the same value compared to the general costs of standard of living in society.

Family Income Benefit

Family Income Benefit is designed to provide a monthly payment to your family for a set period of time if you were to pass. The policy will usually be set with an end payout date that correlates with your expected retirement age or your family are no longer dependant upon your income. The policy will often be based upon your salary or outgoing and the monthly payout will be paid in monthly instalments to your family. This policy is ideal for those who are the main breadwinners of the family and want to ensure that their family can maintain a certain standard of living if they were no longer there.

Whole of Life Insurance

Whole of Life Insurance is pretty much exactly what it sounds like. The policy will pay out a lump sum upon your death and there is no end date to the policy. Provided that you keep up to date with your monthly premiums and your original application is completely accurate, your next of kin are guaranteed a policy payment should you pass. This type of policy is often used to cover funeral costs to give people the peace of mind that when they pass their family will not need to struggle with the immediate expenses of funeral arrangements.

The table below shows a generalised comparison of the different types of Life Insurance policies that are available. No one policy is better than the other and it is important that you choose the right Life Insurance for your individual circumstances.

Please note these are just examples and if you would like advice on the correct cover to choose you would be better speaking to a financial adviser.

Additional Features of Life Insurance

Terminal Illness Cover – Most Life Insurance policies come with Terminal Illness Cover that means that should you be diagnosed with less than 12 months to live, the policy sum assured will be paid to you directly. Each insurance provider has different stipulations to this add on with many setting an exclusion period on this type of claim for the last 12 to 18 months of the policy.

Trust – Life Insurance policies that are for single lives can be placed into Trust. This is a legal document that informs the insurer of who you would like your policy payout to be made to. The Trust is executed by a set of trustees (your trusted family or friends) who will work with the insurance provider to ensure that your policy payout goes where you intend it to.

Exclusions – The primary exclusion that comes with most Life Insurance policies is in regards to the policyholders death by suicide within the first 12 months of the policy. Should this occur the policy will become void, the premiums paid refunded to your next of kin and no policy payout will be made.

* Potential payouts are dependent upon policy premiums being up to date, full and accurate disclosure within the original policy applications and circumstances of your passing depending upon any applied exclusions.