What would you want your life insurance to cover?
Term life insurance is a type of life cover that lasts for a fixed period of time (known as a ‘term’) – the payment is made all in one go. This type of cover is useful for providing financial security for dependents.
With a term life insurance policy you choose the amount you want to be insured for and the period for which you want cover. This is the most basic type of life insurance. If you die within the term, the policy pays out to your beneficiaries.
If you don’t die during the term, the policy doesn’t pay out and the premiums you’ve paid are not returned to you.
Every family’s circumstances are different. It’s important to think about how yours would change if you were no longer around, as hard as that may be.
There are two main types of term life insurance to consider – ‘level-term’ and ‘decreasing-term’ life insurance.
Level-term life insurance policies
A level-term life insurance policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains level throughout the term – hence the name. The monthly or annual premiums you pay usually stay the same too.
Level-term policies can be a good option for family protection, where you want to leave a lump sum that your family can invest to live on after you’ve gone. It can also be a good option if you need a specified amount of cover for a certain length of time, for example, to cover an interest-only mortgage that’s not covered by an endowment policy.
Decreasing-term life insurance policies
With a decreasing-term policy, the amount you’re covered for decreases over the term of the policy. These policies are often used to cover a debt that reduces over time, such as a repayment mortgage.
Premiums are usually cheaper than for level-term cover as the amount insured reduces as time goes on. Decreasing-term assurance policies can also be used for Inheritance Tax planning purposes.
Family income benefit policies
Family income benefit life assurance is a type of decreasing term policy. Instead of a lump sum, though, it pays out a regular income to your beneficiaries until the policy’s expiry date if you die.
You can arrange for the same amount as your take-home income to be paid out to your family if you die.
Increasing term insurance policies
The premiums and cover will increase during the term of the policy. This can be used to keep in line with inflation or to cover an increasing debt.
You may wish to opt for increasing term insurance to protect your policy’s value against inflation (the rising cost of living) – whether that’s to cover a debt repayment or a substantial purchase.
