LIFE INSURANCE

Everyone would like to consider themselves to be immortal, but death will come to us all one day. Life insurance may sound frightening but it is there to protect those most important to you. With a life insurance policy in place your family will receive a lump sum should you die or in some cases a guaranteed monthly income.

This means your loved ones would at least be able to pay the mortgage, bills and other living costs.

Here we explain life insurance and the different types available.

Whole-life assurance and Term insurance Term insurance, as the name suggests lasts for a fixed term, usually between 10 and 25 years and only pays out if you die during that period. If you survive the term when it matures then the insurance term comes to an end and ceases to have any value. There is no monetary gain from outliving the policy but surviving the term will probably be compensation enough.

The three main types of term insurance:

1. Level term insurance: This offers a set sum of cover for your death at any point during the term

2. Decreasing term insurance: This provides cover that gradually falls, so the pay-out will be less if you die towards the end of the term.

3. Increasing term insurance – this type of cover gradually rises in line with inflation over the life of the term.

Decreasing term insurance will generally be less expensive and increasing term insurance to be most expensive.

Whole-life assurance guarantees a pay-out when the inevitable happens. Assuming, you keep up the policy payments or ‘premium’ for your cover. Whole-life policies are therefore more expensive because the term can be the longest.

Premiums can be paid monthly by direct debit or annually. Paying annually could earn you a discount because it reduces administration costs.

All forms of insurance relate to risk, which means your premium will depend on a variety of factors including your age, whether you smoke, family medical history and any health conditions.

If you choose guaranteed premiums, the amount you pay each month will always stay the same. Charges are likely to be higher at first but you need to weigh this against inflation over the term and the certainty that your premium won’t increase.

You may consider adding ‘waiver of premium’ to a policy at an additional cost.

Doing so will ensure your premiums are paid if you cannot work for an extended period due to illness or injury.

Pay-outs with term insurance come as a lump sum payment. If you believe your family would be better receiving a regular income, consider family income benefit policies. They provide a monthly tax-free payment, but a word of warning the income will stop when the term ends, even if you die just prior to that date.

With some life assurance plans, some or all of your premiums may be paid into investment funds, where the policy value may increase over time, but the pay-out on your death will vary depending on how the investments perform. You need to consider very carefully the details of each plan and how they work for you before you proceed.

You should contact your professional financial adviser who will be able to help you decide which individual policy is right for you.