The majority of individuals have enough financial worries that they don’t have time to think about what would happen in the event of a death. Claiming on a Life Insurance policy could make the difference, ensuring you’re financially secure if the worst were to happen.
What’s in the guide?
- What is life insurance?
- Life insurance – Term cover
- Life insurance – Whole of life cover**
- Family income benefit
- How long will I need life cover?
- Next steps
What is life insurance?
The majority of individuals have enough financial worries that they do not have time to think about what would happen in the event of a death. Claiming on a Life Cover policy can make the difference, ensuring you are financially secure, should the worst happen.
The vast majority of mortgage holders do not take life cover. This is particularly surprising when you consider that 98% of life cover claims were paid out in 2014.*
Finding the right Life Cover plan takes time, as you may not know the most suitable product for your needs. It is always important to seek expert advice on Life Cover.
Life insurance – Term cover
A term policy provides protection for a given period, after which the policy will stop. Rates can be competitive and the premium you pay is based on many factors, from your age, smoking status and medical history, together with the amount of cover and term length. Within term cover, there are three main kinds of policy:
As the title implies, the sum assured decreases over the term of the policy. This type of cover is most commonly taken alongside a repayment mortgage, to ensure that the remaining debt at any point during the mortgage term is settled in the event of premature death. If mortgage debt remains outstanding on premature death, the mortgage balance will still be outstanding and may result in the home being repossessed.
With this plan your dependents will receive a lump sum that does not reduce over the term of the policy. It is suitable to take alongside an interest only mortgage where the debt does not reduce, and also as a lump sum to protect the lifestyle of a family or partner if the main income earner were to pass away.
In simple terms, the sum insured increases over the life of
the policy. It is designed to address inflation and changes
in circumstances over the term of the policy. Premiums may increase for additional cover, but they will always be based on your health at the start of the policy.
Life insurance – Whole of life cover**
Whole of Life Cover tends to be the more expensive option, as it provides the protection offered by the Term Cover, as well as containing an investment element. The benefit of this policy is that it could have a cash value during the term although the value isn’t guaranteed like any investment and can go down as well as up. For this fact the cost is much higher than a simple term assurance, these policies tend to be most suitable for clients who have lifetime dependants or a specific need for a sum of cover for life such as covering inheritance tax or funeral costs.
Family income benefit
If you’re concerned about how your family would handle a large sum of money, you can choose a family income benefit policy. This allows you to pay an agreed monthly sum for a specified period.
You can decide a predetermined monthly income to be paid to your dependents in the event of your premature death. This income can cover mortgage payments or living costs for the family to avoid financial hardship. The payments will continue from death of the insured person, until the end of the policy term.
How long will I need life cover?
There are many areas to consider when working out how much life cover you need.
It is best to review all the debts you currently have. Including mortgage, credit cards, personal loans etc. These will all need to be paid off in the event of your death, so it’s advised to review your current repayment requirements. For example, if you take out a mortgage for 25 years, it is beneficial to take cover for this time to ensure the debt is cleared when you are no longer here.
In addition to this, it might be suitable to take out additional cover on a non-reducing basis. This ensures you leave a lump sum for your dependents, in addition to paying off the mortgage debt. If you have young children it is important to consider how they would support themselves if you were to die. It is possible to set up cover that would support them until they are financially independent.*Claims data published by the Association of British Insurers in ‘UK Insurance & Long Term Savings Key Facts 2015’, and ‘UK Insurance & Long Term Savings Key Facts 2014’.**CMME do not advise on Whole of Life Cover.
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