Life Insurance – don’t make it complicated!

life insurance

Life insurance doesn’t have to be confusing. Follow our simple guide to make sense of the different types of products available…

Level term life insurance

This kind of insurance will expire after a set amount of years (the term). It’s simple and easy to afford. You just pay your premiums each month, and should the worst happen and you die during that time, a payout will be made to your family. The size of that payout and the length of the term is decided before you start the policy.

Whole of life insurance

Whole-of-life insurance does what it says on the tin – you are insured for the whole of your life. Your family will receive a lump sum should you die. The coverage is set at the start, and as long as your premiums are paid, that amount will be paid out on your death. With the most popular type of plan, as you pay in, the policy acquires a cash value, as some of your premiums are invested. It is normally possible for you to eventually get access to some of that cash, but that would affect the ability of the plan to continue to provide the amount of cover provided.

Mortgage decreasing term insurance

This insurance is taken out to cover the balance of your mortgage, so as time goes on and the balance goes down, the payout will become less. You pay this insurance over a fixed term – the same term as your mortgage. The reductions may occur either once a year or monthly. This is cheaper than level term as the amount of cover needed reduces as the term passes.

Family income benefit

This is a different kind of insurance – instead of a lump sum, this pays out a regular, fixed and tax-free income should you die. This is a cost-effective way to ensure your family’s financial security without your income. The policy is paid out for a certain term – for instance until your youngest child has left school. Whilst it may be attractive to have a large lump sum, a regular income may avoid the concern of investing the money or ensuring that it lasts.

Critical illness cover

This policy pays out if you are diagnosed with a serious illness specified in the terms of the policy. It may also cover you if you are deemed to be permanently disabled. This insurance is designed to enable you to concentrate on your treatment and recovery, without having to worry about paying the bills. This cover usually pays out a lump sum, which is tax free, and can be used to cover bills, pay off your mortgage or provide for the costs of treatment. It doesn’t usually cover you for death, in that case your life insurance would pay out.

Employers liability

This is insurance held by your employer to cover employees who have a work-related injury or illness. It can cover medical bills and some of your wages. However, it is still prudent to cover yourself with life insurance and critical illness cover, so that you have control over the payouts that you and your family would receive should you be unable to work, or if you die.

Two single lives vs joint life

If you are in a couple – married or living together – you have two options for life insurance:

  • Single life insurance: You each have your own policy. If one of you dies, the policy will pay to the other, but the surviving partner will still have their own life insurance policy running.
  • Joint life insurance: This policy covers two lives, however, it only covers the first person who dies. So, should one of you die, the policy will pay out and end, and the surviving partner will not be insured any longer. This insurance is cheaper than two single policies but may not be suitable for everyone’s circumstances.

Income protection insurance

Not strictly a life insurance but often considered at the same time and as an alternative, especially if you are self-employed. This is a policy that can help if you are no longer able to work due to injury or illness. You pay a regular premium and, should you not be able to work, it will pay out a predetermined amount of cover each month for as long as the period determined at the start.

If you would like to discuss life insurance or any other financial matters, we will be happy to help. Please contact us without obligation.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk