How to make sure you get the right life insurance for you
It's the policy that none of us really want to think about
but if you have any dependents, life insurance is one of
the best ways of looking after their needs should the worst
happen.
However, with so many different types of policies available
it's important to be able to choose the right one for you
and your family so that everything you need to cover is
covered, as well as ensuring that you are not paying for
any features that you don't need.
What are the different types of life assurance?
The basic criterion of a life assurance policy is that it
pays out a lump sum on the policyholder's death. Beyond
that there are a bewildering number of permutations and
combinations and a baffling array of jargon.
The two broad areas of life insurance are protection only
and investment.
- Protection only:
Known as "term insurance", protection-only policies pay a
specified amount if you die within a defined period. If you
survive it pays out nothing.
Within this category there are various different types of
policy including decreasing term (more widely known as
mortgage protection) where the sum decreases commensurate
with your mortgage commitments; level term, which pays out
an assured sum that remains unchanged throughout the term;
and increasing term which is linked to inflation.
- Investment One of the most popular forms of investment
life assurance is the endowment policy. This is essentially
a savings scheme with the added bonus of life insurance and
pays out a sum of money if you die within a certain period
OR pays a sum of money out at the end of that agreed period
if you survive. This sector also includes "Whole Of Life"
insurance, which guarantees the payment of a lump sum when
the policyholder dies whenever that is (as long as you keep
up with your payments).
Again, there are various types of whole life policy
including non-profit (where the cash sum is fixed) and with
profit (which pays a fixed cash sum plus any profits made
on the investment, varying terms are available).
Your choice of life assurance is going to be dictated by
several factors. First of all, look at your family
circumstances – do you have a mortgage? Would your partner
be able to continue to make mortgage payments in the event
of your death? If not, then mortgage protection is a must.
If your partner is looking after children and unable to
replace your income in the event of your death, then you
should consider a policy that replaces your income and
perhaps considers extra expenses such as childcare or
school fees.
Once you have addressed your needs you can then look at
what else you can afford – for example, do you want to
leave something for your children in the event of your
death? Do you want to enter into a life assurance policy
such as an endowment purely for investment purposes?
Whatever your requirements, once you understand what is
available, you can use online resources to make your
decision easier.
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