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Life Insurance
Term life insurance pays a tax
free lump sum in the event of death within a specified period of
your choice (known as the 'term'). Fixed monthly or annual premiums
are paid for the duration of the term. Most terms are typically
25 years in line with one’s mortgage or the time period associated
with other forms of borrowing. There is no investment value in a
term life insurance policy, hence if no claim has been made there
is no maturity value payable at the end of the term.
It is the simplest and cheapest form of life insurance.
A few pounds per month can provide cover for a payout of tens of
thousands of pounds. You are covered for as long as you continue
to pay the monthly premiums. If you stop paying the premiums, the
policy terminates.
Different types of cover are available:
'level' - a lump sum is payable on the event of death.
This lump sum remains constant throughout the period of the life
insurance term. 'decreasing' - a lump sum is payable on the event
of death. This lump sum decreases by a fixed amount during the period
of the term, decreasing to nil by the end of the insured period.
This form of cover is usually used for mortgages or other loans
where the amount owed decreases year on year. Single and joint life
plans are available. A single life plan insures one life. A joint
life first death plan insures two lives but only pays on the first
death.
Premiums typically depend on the sum to be insured,
the period of insurance cover, your age, your sex and whether you
smoke or not. A non-smoker is usually defined as someone who has
not smoked for at least twelve months. Premiums for women are generally
lower as on average they tend to live longer. Medicals are not normally
required, although in some circumstances a report may be required
from your doctor. Always complete any application honestly as failure
to do so will result in the insurer refusing to pay on the event
of death. Additional options can be added to increase the level
of cover, although this in turn increases the monthly premium.
Additional options to be considered include:
Critical Illness: a lump sum is paid in the event
of diagnosis of certain critical illnesses. You can save money by
combining term insurance with critical illness cover. However, depending
on the policy type, this may provide a single payout should death
follow a critical illness diagnosis, rather than two payouts if
cover is obtained separately.
Terminal Illness: the lump sum is paid early on diagnosis
of a terminal illness. This allows you to make arrangements for
your dependents whilst you are still alive.
Waiver of Premium: if illness prevents you from working
your monthly premiums are paid on your behalf for a predetermined
period. Check your policy for the permissible period of premium
non-payments.
Counselling: counselling may be included to help your
family cope with your death.
Guaranteed Premiums: guaranteed premiums ensure that the premiums
remain the same throughout the duration of the policy term. Alternatively
'reviewable premiums' require the premiums to be reviewed periodically,
typically every five years, meaning that premiums can increase dramatically
following review.
The terms and conditions of policies vary significantly,
so make sure you understand the scope of the cover being offered
before committing yourself. Always take professional and independent
financial advice before taking out a life insurance policy.
Making the decision to buy life insurance can have a lasting effect.
Without a life insurance policy your family could suffer great financial
hardship when you die. Life insurance is a way to ensure that you
can still take care of your family after you are gone. Knowing what
considerations you should make when choosing a life insurance policy
can help make the process easier.
Determining the amount of life insurance really depends
on your personal situation. Consider what would happen to your family
without your income. If it would cause financial problems then you
should take that into account when choosing the amount of our policy.
You should also consider factors like health insurance that could
increase the needed income.
The cost of life insurance policies also varies depending
on many factors. Company life insurance policies are usually always
going to be the cheapest. Most often, though, you are only covered
for the period of time you work for the employer. Also you usually
have to be with an employer for a certain amount of time before
you are eligible to receive life insurance benefits. Private life
insurance polices can range in costs depending on the agents fees,
types of coverage and limits. Other factors that effect costs are
high risk factors, like someone who smokes, is overweight or has
a preexisting medical condition.
The best way to choose a life insurance policy is
to consider all the factors and take time to compare different policies.
This is an important decision and should not be rushed. Discuss
the policy with you spouse to ensure you have covered everything
and haven’t forgot any important details. Once you have chosen
a policy be sure to review it often, especially after any significant
life change. The importance of life insurance is often underestimated
until the need for it arises, so planning ahead and purchasing a
policy will ensure a stable future for your family.
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