Determining what kind of life insurance policy you need can be tricky. Many factors can contribute to the size, type or term you may need. One of the primary factors to think about is what expenses would need to be covered in the event of death – mortgages, debts, income replacement or funeral expenses.
The plan will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.
Term life insurance covers you for an agreed period of time, for example 30 years. This is the ‘term’ of the policy. This type of insurance is often taken out to cover a loan, like a mortgage, or to cover an ongoing financial obligation, like raising children, or can even be used to cover the costs of a funeral. So if you have 20 years left to pay on your mortgage, you can take out a term life policy that will cover you for this period of time.
The right insurance for you depends on both your circumstances and what you would like your payout to cover.
The length (or ‘life’) of the policy might be a consideration. If you expect that your mortgage has, for example, 20 years to run, you might want a decreasing term policy that runs for this length of time.
Or you might be entering old age and want to set something aside for your children or grandchildren. In this case, you might be more tempted by an Over 50s policy rather than one with a lifespan of pre-determined length.
Your personal financial circumstances could also play a prominent role in choosing life insurance. Your employer might offer death in service, which can supplement the value of a life insurance policy. Or you might know that you are only able to responsibly commit a certain amount each month to a life policy, which can affect the size of a payout.
And you might simply know that you want a policy payout of a certain size. In this scenario, you can look at which types of policy are going to offer this and what conditions might be placed on such a policy. Remember that payouts can be subject to inheritance tax.
This type of insurance covers you for the whole of your life, rather than a fixed period of time. You pay into a policy, and the insurer agrees to pay your loved ones in the event of your death, no matter when that might be. It’s a good kind of policy to have if you want worry-free cover, without the hassle of taking out a new policy each time a policy term expires.
Whole of life insurance (sometimes called ‘life assurance’) is usually significantly more expensive than term life cover for the same size of payout, and normally has functions besides insurance. For instance, you may be able to borrow against the value of your whole of life insurance, which is one reason for the inflated cost.
Certain whole of life policies are designed to be cheaper than term life as they cover shorter periods for smaller payouts and don’t come with extra options such as borrowing against the value of the policy. An example of this type of policy is the Post Office Over 50s Life Cover, which guarantees acceptance for UK residents aged between 50 and 80.
If you have a partner and want to make sure that your other half, and children, will be looked after if one of you should die, then a joint life insurance policy could be right for you. It insures two people at the same time, and pays out if one of you passes away. It can make life easier knowing that you are both covered, but remember that in most joint life policies, once you make a claim, the partner who is left won’t be covered any more – they’ll need to take out their own individual policy after that.
Post Office don’t offer joint life policies. However if you are in a relationship and wish to get cover, you can take out two single policies, which have the added advantage of paying out individually, rather than just once as with joint life insurance.
Over 50s life insurance policies are designed to meet the needs of people aged between 50 and 80. People at this age have different needs and lifestyles, and may want the flexibility of adjusting a policy so that it’s more affordable, but still guarantees something to help their families if they die. If you are looking for impartial advice about this, then charity Age UK may be able to help.
Critical illness cover pays out if you fall seriously ill, usually with a single lump sum payment. It’s important to make sure that you know what critical illnesses are covered by your policy, and what length of time your policy covers. It’s a useful way to help towards your expenses if you’re too ill to work, or would struggle to meet bills like medical expenses.
The payout for critical illness will usually be a portion of your overall payout, for instance 25%. This will differ by insurer, and normally any critical illness benefit cannot be added to an existing policy but must be bought at the point the policy is taken out.
Terminal illness cover will pay your family a lump sum if you’ve been diagnosed with an illness from which you will die in the next twelve months. This may be a devastating time for you and your family, and having terminal illness cover can help you all by easing your financial worries during this time.
Parent Life Cover is a free policy offered by the Post Office that parents can take out to protect their families. You can take this cover out once your child has been born, but is not older than four. It pays out based on the number of children you have. So if you take out Parent Life Cover that gives you £15,000 of cover on your life for each child you have, a parent of three kids would be covered for £45,000. If there are two parents, they can each take out a policy. You will need to check the terms of the policy first. It offers cover for one year and is a great way to give you peace of mind during a time when your growing family is most vulnerable.
