The cost of life insurance has fallen over the past few years and there’s now more choice than ever, at prices that won’t break the bank.
If you have a family you could provide security for them by taking out adequate life insurance cover. In the tragic event of your death they would have enough to cope with, without added financial worries.
There are various types of life insurance and here we cover the types of term policies on offer.
· A level term policy pays a one off cash payment on death. The amount insured stays the same throughout the period of cover.
· An increasing term policy is another term for indexed insurance. The value of the final payout rises in line with inflation. Depending on the terms of the policy, premiums may also rise accordingly.
· A decreasing term policy is designed around the fact that the amount payable on death will reduce through the term of the insurance, right down to a nil balance at the end of the term.
The policies are often used to safeguard loans and mortgages. The policies above each have their own merits, depending on the type of mortgage you are guaranteeing.
The level term policies are often purchased to cover interest only mortgages, where the capital borrowed does not reduce over the years. The capital sum, remaining the same as the original, is covered by the cash payment on death.
Increasing term policies offer the protection against inflation, but are correspondingly more expensive.
Decreasing term policies are often used for repayment mortgages, where the capital amount owing decreases over the term of the mortgage. Premiums will be lower for this type of policy, compared to level term insurance.
Benefits from term policies can be paid out in two ways. The first is via a lump sum payment and the second is via a “family income benefit”. As far as the second method is concerned, your family would be provided with an agreed annual income for the remaining term of the policy. The cost of policies will be affected by the choice of how the payment is to be made. The insurance company will potentially pay out less money overall if the insured person lives until the later years of the insurance term. Because of this the cost of family income policies will be lower.
So far we have talked about covering mortgage and loan payments. Whilst this would certainly be a weight off the minds of your family, further cover should obviously be considered. When working out just how much money your family would need, should the unexpected happen, it is recommended for an average and typical family, each parent should have at least £150,000 worth of insurance per child, plus any death-in-service benefits, which are often linked with your employment. If you choose to take the family income benefit, then it is thought that you should plan for an income of between £20,000 to £25,000 per child per year.
Another type of life insurance is known as whole of life. This pays a guaranteed amount, known as the sum assured, on the death of the policyholder. There is no specified term on this type of insurance.
It is possible to purchase life insurance with your pension fund. If you choose this method of purchase, you will be allowed tax relief on the premiums, so a higher rate taxpayer will get £100 worth of life insurance for just £60. However, due to higher administration costs, premiums will be likely to be higher and it is felt that this could cancel out any gain to basic-rate taxpayers.
Rather than opt for a joint policy, it’s better for couples to take out individual cover. A joint policy pays out once, on the death of the first partner, whereas the individual policies will pay out twice.
Get on to your broker – you’ll find one easily if you log on to the internet – and find out the costs of protecting your family. It’s worth it for your peace of mind.