Life Insurance Guide

Life insurance provides your dependents with some financial income in the event of your death. If you have no dependents, children or partner than life cover may not be applicable.

Policies vary vastly from one to the next so it is recommended that you shop around for the most appropriate deal to your needs. It is also suggested that you seek some sort of financial advice to help recommend the best policy.

What types of insurance are there?

There are two main types of life insurance: whole of life and term insurance.

Whole of life policies will pay out an agreed some on event of your death but are usually more expensive than term insurance policies. This is because term insurance pays out only if you die in the term you have agreed with the insurer, so if you live past the end of the term your cover stops and you will receive nothing. It is possible for a couple to take out a joint term policy that will pay out if either of the policy holders die during the term.

There are different levels of term assurance available. One of the more popular is level-term insurance, where you pay fixed premiums for a number of years and there is a full payout in the event of your death during the term.

Increasing term insurance has higher premiums as the cover increases each year your policy is active and doesn’t require a medical.

Decreasing term insurance has cheaper premiums however the payout is reduced over the cover period at a flat fixed rate each year.

You can even arrange insurance specifically for your mortgage where the lump sum which is payable on death decreases in line with your mortgage balance.

There is also family income benefit which instead of paying out a lump sum on your death, it will pay an annual tax-free income to your dependents until the end of the term.

What are the exclusions?

With nearly all polices there will be exclusions that will not cover you if you participate in risky sports of are in a poor state of health. You may even be refused cover all together.

The majority of life policies with have options extras such as being able to waive a premium payment. This means that the insurance company will make your premium contributions to keep the benefits of your policy active if you become ill or injured and are not able to work.

Critical-illness policies (CIC) provides you with cover if you suffer from a serious illness such as cancer or heart disease. If you contract one of these illnsesses during the term of the policy, either a lump sum or a regular income for a set period will be paid to you.

The FSA required all insurance companies and their brokers to present you with a Keyfacts document which details the full list of services and benefits in your policy.

How much does it cost?

The cost of your insurance premium is decided after the insurance company reviews several factors, mainly your current health, the length of the policy and the amount of cover you require.

Insurance companies are less likely to insure people who are likely to require a payout, so those who smoke or have dangerous jobs will usually have to pay higher premiums than those who don’t.

The most important factor when deciding a policy should be the level of cover rather than the price. It is needless to have a cheap policy that won’t cover you for ailments you may receive in the future.

What happens in the event of my death?

Some advisers will recommend that you put your policy into a flexible trust. This means that the proceeds of your life insurance can be paid to your dependents in a hassle free and timely manner.