If you want to protect your family, you might have thought about investing in life insurance. But with so many different types of cover, and dozens of different providers, you might have wondered “what’s the best life insurance for me?”
As life insurance experts, we can talk you through your options to help you find the right cover for you.
There are four main types of life insurance:
- Level term insurance
- Decreasing term life insurance
- Family income benefit
- Whole of life insurance
To help you work out which might be the best life insurance for your needs, here’s a guide to these four common types of protection.
1. Level term insurance
Level term assurance is one of the most common and cost-effective ways to arrange your life insurance. It ensures that a fixed lump sum will be paid to your beneficiaries if you were to pass away during a defined period of time.
For example, you might take £200,000 of level term insurance over a 25-year term. If you died within the 25-year term, the policy would pay the fixed amount of £200,000 to your nominated beneficiaries.
There’s no cash-in value with a level term insurance policy and if you survive past the end of the term, the policy will simply cease.
Think of it like your car insurance – if you don’t make a claim while you have the policy, you don’t get anything back.
As there is no cash-in value this can be one of the cheapest ways to secure the peace of mind you need.
You can choose the sum assured and the term to suit your needs. For example, if you have an interest-only mortgage (where the amount you owe does not reduce) you may want to ensure that your mortgage could be repaid in full if you died within the term.
Or, you may have younger children and you want to provide a fixed amount of money if you died before they reach a certain age.
The cost of this type of cover can start from just a few pounds a month. We can scour the market for you and compare the prices from dozens of the leading UK providers, so you don’t have to pay more than you need for your cover.
2. Decreasing term insurance
As the name suggests, decreasing term assurance pays out a reducing lump sum over the term of the policy.
For example, you might take £200,000 of decreasing cover over a 25-year term. If you died in year one, the policy would pay the full sum assured. Then, the amount of protection decreases each year and so, if you died in year 15, your beneficiaries would receive a lower payout.
This type of cover is most often used in conjunction with a repayment (capital and interest) mortgage. As you pay off your mortgage over time, the amount of life insurance will also reduce. It means that, if you die, the cover is designed to be sufficient to repay whatever you owe.
You can also use this type of insurance to cover a large potential Inheritance Tax bill if you have made significant gifts to other people. Read more about life insurance and Inheritance Tax in our guide.
Again, this type of protection has no cash-in value. If you live beyond the policy term your cover will simply lapse.
The cost of this type of cover can also start from just a few pounds a month. Using our online comparison service, you can compare the cost of cover from dozens of the leading UK providers.
3. Family income benefit
If you have children and want to ensure they can maintain their standard of living if you’re no longer around, family income benefit can be a great choice.
As with other types of term insurance, you can select the amount of cover you want and the term of your policy. However, rather than paying a lump sum, it instead pays a monthly income to your beneficiaries on your death, from the time you die to the end of the term of the policy.
For example, you might work out that your family need £2,000 a month to pay their bills and to maintain their standard of living. You decide to take out cover for a 20-year term, until your youngest child is 21.
If you died after 10 years, the policy would pay £2,000 a month to your beneficiaries for the remaining 10 years.
Another advantage of family income benefit is that you can normally “index-link” your cover at the outset. This means that the amount of benefit (and your premium) will rise each year to ensure that your cover remains sufficient for you as living costs rise.
As with other types of term insurance, there is no cash-in value with family income benefit. It is designed to ensure your loved ones receive financial support if you pass away, and is ideal if you want to make sure your income is replaced until your children are financially independent.
There are three key advantages of family income benefit:
- It can work out cheaper than term insurance
- It can be more flexible as you can take out a separate policy for each child and tailor the cover amount and the term dates
- Receiving a regular income can be easier for your loved ones to manage than a large lump sum. If your family receive a significant lump sum on your death, they will have to manage this each month and make sure the money lasts as long as it needs to.
Family income benefit can be a very cost-effective way of ensuring your family receive valuable financial support in the event of your death. Read our guide to family income benefit to find out more about this type of protection.
4. Whole of life insurance
Term insurance policies pay out if you die within a specific term. A whole of life policy pays out on your death – whenever that occurs.
Simply put, once your policy is in force, and as long as you continue to pay your premiums, this policy will pay a lump sum on your death.
As this type of policy will always pay out, it tends to be more expensive than other term-based cover. You also need to remember that you’ll have to keep paying premiums for a long time – decades in some cases – and so the total cost of your premiums could be substantial.
Whole of life policies are generally used to cover things like funeral expenses, or sometimes to pay part or all of an Inheritance Tax bill on death (as long as the policy itself is placed in trust).
Get in touch
With many different types of life insurance and dozens of insurers, you might well be wondering: “which is the best life insurance for me?”
As life insurance experts we can help you to establish which is the most suitable type of protection for your specific needs. Whether you’re a parent, you have a mortgage, or you simply want the peace of mind that your loved ones will be financially supported when you’re no longer around, we can help.
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