Different types of life cover

If you have never considered it before, you may be surprised at the variety of life cover policies available. But there is a diverse range of life insurance products out there on the marketplace, which means that you may feel spoilt for choice.

How much do you want to cover?

Some people only consider life cover when they have a change in their circumstances. For example, getting married or becoming a parent may mean that you feel a new sense of responsibility. Accordingly, you may wish to make sure that your dependents’ needs are protected.

Some homeowners may be keen to protect their family home with life insurance if they have a mortgage on it. After all, if a homeowner dies when their mortgage is still outstanding, then the mortgage still exists – it does not die with them. Accordingly life cover may be available to pay off the mortgage in these circumstances, leaving the family that are left behind secure in the family home.

Some life insurance customers may also wish to add an extra lump sum to their insurance policies, to give their family something extra to live on after they have died.

How does life insurance work?

Life insurance companies may take down a number of details about you, which may include your age and some information about your health. If an insurer agrees to cover you, you have to pay the premiums as arranged to continue the cover.

The insurer should pay out on your death. Some policies also offer cover for critical illnesses (the definition of which may depend from provider to provider).

Some couples may choose a joint policy, which means that both of their lives are covered by the insurance, but that the insurer may only pay out for the first person to die.

What types of policy are available?

Depending on your circumstances, you may have the following main policies available to you:

• level term assurance (where a certain amount would be payable should you die at any point in the policy’s term);
• decreasing term cover (where the amount that would be paid out decreases as the term progresses); and
• whole of life insurance (where the insurer would pay out as long as the premiums had been paid).

These policies are typically for smallish sums and are designed to help with funeral expenses or to leave a small legacy for your children and grandchildren. Some providers may guarantee to accept you as a customer, with no medical questions asked.

Other, more unusual types of life cover may be available, but these are often complex products that may require professional financial advice.

The importance of life insurance

During tough economic times, people tend to try to avoid discretionary spending as much as possible. With uncertain job markets, and tight credit markets, avoiding spending for things that are not vital to a comfortable lifestyle is recommended. However, the challenge at times is trying to decide whether certain expenditures are discretionary, or really important. During these tough stretches, the importance of life insurance can often be overlooked. Some people view life insurance as a product that ideally they would have, but others see it as a non-essential when money is tight.

The importance of life insurance cannot be ignored, though. Yes, in the near term it may seem like an unnecessary outlay of money each month. But, imagine what would happen if tragedy does strike. What if an income earner does die unexpectedly? Then, the tough economic situation definitely gets worse for the family that is left behind. Imagine your survivors being forced to deal with tough market conditions and not having a reliable income. For a small monthly investment, even when on a tight budget, a person can provide a significant security to his or her family.

Okay. So now the importance of life insurance has been established. It is still definitely important to get the best value possible in protection. Finding a great deal on life cover has never been simpler. There are great independent brokers who offer the ability for consumers to quickly and easily obtain quotes online and compare the terms and conditions of various products.

The first step in finding a good life insurance plan is to complete a basic profile and assessment. There are many factors that affect the premium cost of life protection. Essentially, the provider wants to assess the risk or potential for payout of the benefit when developing the appropriate rate. The more risk of a payout, the more expensive the premium. To get a good deal on protection, it is important to maintain healthy lifestyle habits. Not smoking is a good example of a behavior that can save money on protection. Many insurance products come with health assessments to determine blood pressure and other health risk factors. Gender and age also affect premiums.

Once the profile is completed, offers will begin to show from top insurers. Leading independent brokers work with most of the top insurance providers which helps consumers get the most competitive rates and terms possible. Be sure when exploring life cover options to consider other factors besides price. Reputation of the provider, services and support offered by the broker, and other non-price issues are important.

Given the importance of life insurance to your family’s financial security, please keep in mind these practical tips when considering purchasing life cover:

• Life insurance is not a discretionary purchase, it is a necessity for most people
• Protection does not have to cost a lot, compare plans from top brokers
• Maintain good health to get the best premium price available
• Consider the services and support offered by the insurance broker

Why life assurance is important to your family and loved ones

Money’s tight and everyone’s looking out their bank statements for ways to make savings on all those direct debits that flow out every month.

One of the payments most of us circle as a ‘maybe’ to cancel is life assurance.

Often, it’s a hefty few quid every month going out and life cover is spending that the person footing the bill never receives the benefit from.

Before you cancel that direct debit, have some careful thoughts about the pros and cons of life assurance for you and your loved ones.

Life assurance is designed to pay out a lump sum on the policyholder’s death.

• Term assurance covers someone’s life for a fixed period, like 10 or 20 years. Within term assurance are several different pay out and payment plan choices.

• Whole life assurance provides cover from the start of the policy until you die, when a lump sum is paid out.

Policies can cover couples, often on a ‘joint life first death’ basis, which means the policy pays out a lump sum when the first person dies.

If you’re young, single, rent and have no dependents, then life assurance is worth the investment if you have cash to spare – because if you shop around you can buy cover cheaper now than when you settle down later simply because you are younger and hopefully fitter.

If you own a house, you should consider some cover so you can pay off the mortgage and pass the property on to your loved ones.

The same goes if you are living off savings, investments or a pension and your partner has an income too, then life assurance is probably not worth the cost for either of you.

For everyone else, some serious thinking is required before you cancel any life assurance.

• You can probably never buy the same cover as cheap again because the older you are, the more expensive the cover. This makes cancelling a policy and starting again a few years later a false economy.

• If you are the main bread winner, you need to consider giving your partner and any children a breathing space to get on a sound financial footing while keeping a roof over their heads

• If you are a one-parent family, a payout gives a helping hand to whoever takes on caring for your children while they sort out their new life

• If you care for someone with special needs, you have to think of the costs involved in housing and caring for them should something happen to you.

The probability is most people are under-insured as the mortgage is a reasonably low percentage of most people’s outgoings while interest rates are low.

So rather thinking of cancelling your policy, perhaps you should check if you have enough cover to make sure your family can cover the rest of their monthly spending on essentials like food, petrol, utilities and Council Tax should you die unexpectedly.

Looking at life cover called family income benefit can help here. A family income product pays out a tax-free fixed monthly amount rather than a lump sum like standard life policies. Some family income benefits are indexed linked as well.

You need to look on the web for one of these policies, as most high street banks, building societies and supermarkets don’t sell them.

Type ‘family income benefit’ in to your search engine and lots of comparison sites will come back so you can shop around for a quote.

Summary

• Life assurance is designed to pay out a lump sum when the policyholder dies.

• If you are single or retired, you probably don’t need any new life policies

• Families, homeowners and carers should look at if they died whether life assurance would help others reliant on their income

• Check the amount paid out by the life company is enough for your loved ones’ needs if you pass on

• If you are thinking about starting or increasing life cover, check out whether a family income benefit policy is more cost-effective and better suits your circumstances.

The Importance of Life Insurance

With the credit crunch raging around the globe, it’s hard to turn on the TV or pick up a paper without being told we need to be preparing for the future right now, and making sure that our families are protected financially in these turbulent times.

A lot of people have taken that to mean reducing expenditure wherever possible, cutting back on all manner of financial services – often including life insurance.

Unfortunately, this can be seen as a major example of false economy. While it can be tempting to save every last penny for a rainy day (especially giving the recently-shaky state of world finance), one of the major downsides of a global slowdown is that it becomes much harder to cope if half of your household income were to suddenly disappear – as would happen should you or your spouse pass away suddenly.

While such a situation is usually a strain on your finances (quite beyond the terrible emotional stresses that come with a recent bereavement), the credit crunch can make these strains much worse. A small premium per month can provide a cash lump sum that will help keep your family afloat should the worst happen.

Although it’s easy to dismiss this as something that won’t happen to you – after all, isn’t everyone secretly convinced they’re going to live to be a hundred? – a look at the statistics shows that dying can be an expensive business. The cost of a funeral alone can be staggering.

A recent survey from AXA Sun Life Direct indicated that the average expenditure on a funeral had risen 6.6% in the last year, going up to £2,549 – £2,287 for cremations, with an average burial cost of £2,811. Add onto that other possible expenses – medical care, for example, mortgage payments, repayments on loans, or even having to support children on a dramatically reduced household income – and it’s not difficult to see why so many people elect to pay into a life insurance scheme.

There are many different options available, tailored to your individual needs, so it shouldn’t be at all difficult for you to find a payment plan that meets both the amount you’d want to pay in each month and what you deem to be a large enough payout to cover your loves ones in case tragedy struck. Yes, it’s a hassle – more so than most insurances, as the majority of providers require you to have a physical examination before they’ll insure you – but for the peace of mind you can get as a result, it’s often worth it.

While most people understand that it’s vitally important to prepare for the future, no one likes to talk about death – especially their own. However, life insurance can be a very worthwhile investment, and – for what usually amounts to a relatively small premium – can provide your family with a real safety net should you pass away, helping to reduce their financial pressures and allowing them to grieve without worrying about funeral expenses and other pressing outgoings.

How does life insurance work?

Life insurance is based on the principle that most of us would want to protect our family and loved ones if, for some reason, we were to die prematurely. It recognises that of course death will come to us all at some stage, but that it is possible to pay a regular premium to secure financial protection for the family against an untimely death. So, how does life insurance work?

Life insurance does this in one of two ways: The first involves setting a specific period of time – a term, with a commencement date and a closing date – during which a benefit becomes payable in the event of the insured’s death. If the insured person dies at any time between the commencement date and the final date, the assured benefits become payable; if the insured dies at any time after the terminal date, however, no benefit is payable. Monthly premiums are payable throughout the term of the life insurance cover but cease beyond the terminal date. At no time does such a life insurance policy have a cash-in value; it pays out only in the event of the death of the insured.

An alternative form of life insurance is called whole of life insurance – because it does just that; it covers the insured person for the whole of his or her life and pays out a benefit whenever death occurs. So if you die within three years of the commencement of the cover, or after 30 years, the whole of life insurance policy still pays out an assured sum. Indeed, with the majority of whole of life policies, the insurer will have been investing the money paid in premiums and a proportion of the earnings from those investments will be credited to the policy in the form of a cash value. The cash value part of the policy can then be used in later life as part of a retirement investment plan, while some of the cash value is also used to maintain payments on the life policy until your death and the payout of the death benefit to your family or loved ones. It will be appreciated, therefore, that premiums for a whole of life insurance policy cost considerably more than those for a term life insurance.

Standard term life insurance can work in more flexible ways, too. For example, one of the most popular purposes of life insurance is to ensure that a mortgage is completely repaid in the event of the premature death of the principal breadwinner. If the mortgage is a standard repayment mortgage, of course, the balance of the mortgage will be decreasing over the years. A decreasing term life insurance policy takes into account this reducing commitment by steadily reducing the amount of death benefit that would be paid over the term of the policy. In this way, the risk to the insurer is reduced and premiums can be made correspondingly cheaper.

Alternatively, term life insurance can be made to work in a way that ensures that any benefits payable increase by incremental amounts each year or that they keep pace with the prevailing rate of inflation. In this case, the policies to choose will be increasing term life insurance (where the benefits increase by a certain proportion each year) or an index-linked term life insurance (where the amount of the benefit increases in line with the prevailing index of retail prices).