Life insurance guide

Also known as Life Assurance.

To put it bluntly, you never know what is around the corner, and you can't afford to ignore the possibility of a premature, untimely ending to your life.

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Can you imagine how your family would cope - not only with the bereavement, but with possible financial hardship?

It's an uncomfortable issue, but it is one that there is no getting around: ensuring the availability of financial support for those who are dependent upon you, in the event of your death, is really important.

Needless to say then that life insurance comes extremely highly recommended. What's more, it's usually really affordable too.

Getting a Life Insurance Policy

Before taking up a policy, you must determine who it is that you need to support and how much they would need. For example, you would need a level of cover that would ensure your mortgage repayments are met.

The people you might want to protect include your partner, your children, and any other dependent relative.

The amount that you decide that your dependents would need is your 'sum assured' and it is this sum, along with your sex, age, state of health and other important details, that determines the amount of your monthly payment for the insurance cover, known as your premium.

Types of Life Insurance

The two basic types of life insurance in the UK are term assurance and whole-of-life insurance.

Term Assurance

Term assurance is the cheapest and simplest form of life insurance. This type of insurance covers a fixed period of time.

It's often taken out when you buy a house - to cover the period of mortgage repayments. Term Assurance makes sure that, in the event of your death, the worries of those you leave behind will be lessened by the fact that your mortgage will be paid off and their housing will be secured.

This type of policy has no value on expiry. There are a number of different types of term assurance, which can be designed to your specific needs, but the two commonest types are level term and decreasing term:

Level Term

Level term insurance involves a fixed, lump sum payout if the policyholder dies during the term of the policy. The customer is required simply to choose the amount of the potential payout, and the length of the policy term, and their premium will be calculated accordingly.

Decreasing Term

Decreasing term insurance involves a diminishing payout over the term of the policy. This type of policy is often used to cover mortgages due to the nature of the diminishing payout and how perfectly it coincides with the decreasing amount that will be owed to a mortgage lender over time.

Whole-Of-Life Insurance

Whole-of-life insurance will be in place for the rest of your life, and it guarantees a payout when you die. Due to the nature of these policies, and the certainty of a guaranteed payout, the premium is much higher for this type of insurance.

As with term assurance, there are several different kinds whole-of-life policies available, ranging from investment-linked options to offerings that outline a set payout sum from the outset.

With investment-linked policies the payouts depend upon the performance of the investment. This option has been popular amongst customers, with optimism over the performance of stock and property investments.

With this type of policy though, your premium can fluctuates it is reviewed periodically (the reviews tend to be every ten years). As a result of a review the premium can go up or the insurance company may opt to decrease the cover offered.

Convertible Term Insurance refers to the option of converting a term insurance policy to whole-of-life insurance when the term of the policy comes to an end. This type of conversion often does not require the submission of any new medical details.

Life Insurance Quote

Now, a word about a different kind of life cover, usually available as an add-on to your policy:

Critical Illness Cover

This type of policy, or policy extension, allows for financial support and cover in the event of a number of different impairing conditions which do not necessarily have to be fatal.

Critical illness cover offers a lump sum payout upon diagnosis of a condition; it is not something that is granted for the treatment of a condition. Treatment related support is a different matter altogether and is offered by health insurance policies.

Things that are covered by critical illness insurance can include strokes, cancer, loss of limbs, heart failure and the list goes on. It is really important to be sure what your policy covers, and which conditions are not eligible for a payout.

Generally, basic coverage will include only the main critical illnesses such as cancer. More comprehensive policies can be more specific to the individual policyholder and cover a vast range of conditions.

Please don't underestimate the importance of fully disclosing your medical history when applying for critical illness cover. It is vital that any medical conditions are disclosed, in full, to prevent your cover from being void and ending up no payout in the event of illness.

Choosing a Life Insurance Policy

If you are planning on taking out life insurance then it is highly recommended that you seek independent advice before you take the plunge.

The market knowledge of an impartial life insurance adviser - their ability to break down policies and explain the pros and cons of each - will help you obtain the most appropriate policy.

And remember, once you take out a policy, it is a good idea to review your protection at least annually, to ensure that any changes to your family situation or employment circumstances are reflected in your policy.

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