The first thing you need to think about when you choose a life insurance policy is how much money would be needed to look after your dependents.
Life insurance policies can help your surviving relatives after your death in a number of ways:
There are different policies to choose from, depending both on how much you would like to leave, and how much money you have to spend on one.
In general, the more protection you get, the higher your premiums will be.
Working out how much you would like to leave.
If you would like to be able to pay off your mortgage in the event of your death, it’s quite simple to work out how much cover you will need.
If you would like to be able to leave your dependants an income, or cover funeral costs then you will need to leave more.
In general the more cover your policy offers, the higher the premiums.
The different types of policies
Level term insurance
This type of policy lasts for a set length of time and pays out a fixed amount should you die within that time frame.
This type of policy is good for covering a fixed debt or leaving your children a lump sum.
It is simple and affordable for most, and particularly useful if you have an interest only mortgage.
Mortgage protection/decreasing term insurance.
This policy will also last for a fixed length of time, usually in line with how long you have left on your mortgage.
The policy will pay out if you die within that time, and the potential payment amount gets smaller every year as the amount you may owe on your mortgage decreases.
This type of policy is affordable for most people, and is cheaper than level term insurance, but typically only covers the mortgage balance.
It’s therefore better for people who only need to cover a mortgage balance as their dependents would need another source of income.
Family income benefit insurance
These policies also last for a set length of time and would pay out a regular income for the remaining term of the insurance in the event of your death.
You might want to match your current salary so that your family can live the life they are used to in the event of your death.
The policy is usually affordable but it won’t pay out for long if the policy holder dies towards the end of the policy or after the time period.
Whole of life insurance
It is possible to insure yourself for the rest of your life so that your dependants are guaranteed a payout but this is typically more expensive than the policies listed above.
It doesn’t cover a set time frame and will pay out to your dependents as long as you keep up monthly payments. Be aware though payments may increase with the term of the insurance.
Joint or single policies?
It’s also worth thinking about whether both you and your partner’s death would have a financial impact.
Sometimes only the main earner in a family takes out a policy, but even with a stay-at-some parent the cost of replacement childcare could be a significant financial burden.
You could look at a joint policy or two separate policies, but it’s worth noting that a joint policy only pays out on the first death, then the policy will end.
Separate policies will however pay out on both deaths, so get more protection. It is worth comparing prices to see which provides better value.
Critical illness cover
You can also take out an insurance policy to protect you if you become very ill. This will pay you a tax-free sum to cover any loss of income, health-related expenses or other bills you incur. You can also insure your children, and you can buy this in addition to life insurance so that both policies will pay out in the event of any critical illness leading to your death.
If you are trying to decide which life insurance cover you need, our team would be happy to help so don’t hesitate to get in touch.