I’ve just become an uncle for the second time so it’s time to adjust my life insurance policy again.
PK and I have no plans to have our own children, both of us are more than happy with being great uncles!
However, it’s important to us that we leave the two littlens something when we’ve popped our clogs and have become plant food!
All parents want more for their kids than they had themselves, and to us, it’s no different for our niece and nephew.
If you do have children, life insurance is extremely important.
I know sometimes it can just seem like an extra bill to add to the many others piling up over the course of the month, but life insurance means you are able to put certain things in place to safeguard your family and children’s future should the worse come to the worse.
Can you really put a price on peace of mind like that?
So, what type of life insurance policy is best for you?
Types of life insurance policy
The world of insurance can be complex and it’s not always easy to work out which cover is going to be right for you.
There are a number of different kinds of life insurance policy, so I’ll explain what those different policies are to make it as clear as possible.
Term life insurance
This is the most common policy on the market.
Term life insurance covers you for a set period of time, for e.g. fifteen years.
If you had term life insurance lasting fifteen years, if you died within that fifteen year period, your insurance company would pay out (subject to terms).
Quite often, term life insurance policy holders reduce their premiums by agreeing to decreasing term life insurance, where your potential payout decreases each year and your premium does too.
You could choose this option if you had took out life insurance to protect your significant other from having to take care of the mortgage themselves if something was to happen to one of you.
For instance, if you had fifteen years left on your mortgage, you could take out a decreasing term life insurance policy that would decrease in premium and pay out alongside your mortgage.
That being said, you don’t have to use term life insurance purely for mortgages.
It could be that you take it to ensure your children still complete their education should you die, so in the instance of your untimely death, your children would still have the funds to go to university etc.
Whole life insurance
Whole life insurance does exactly what it says on the tin – it covers your whole life regardless of what age you die.
It will mean you’re paying your premiums much later on in life, plus those premiums are a lot pricier compared with a term life insurance policy.
Over 50s life insurance
Over 50s policies are designed for people aged 50-80, although people of other ages are able to buy them.
Everyone between 50-80 is guaranteed to be excepted for an over 50s policy.
With over 50s life insurance you pay a fixed premium which typically stops at the age of 85 or 90, but will cover you for the rest of your life.
Expect a qualifying period of between 12-24 months, during which, should you die, only the premiums you’ve paid so far will be returned and not the benefit amount.
These policies are advertised as over 50s plans, but you should also be aware that there are other options for over 50s that could be more suitable.
What are all these other add-ons I’m being offered?
This is where it can become confusing.
As with all financial products these days, there are add-ons you can choose with your policy including:
Critical illness cover
Critical illness protection can cover you in the event that you become seriously or terminally ill.
Although it is a different policy to life insurance, the two are often sold together as a package.
The terms vary from provider to provider, but typically critical illness would cover you for a fixed amount, for instance £100,000, which would usually be paid in one lump sum tax free.
There are some policies on the market where it can be arranged for you to have a monthly allowance if you make a successful claim.
The payout should enable you to pay off any outstanding debts, allowing you to focus on your recovery without the associated stresses of making ends meet.
Income protection cover
Also known as IP insurance, income protection insurance can provide cover if you’re unable to work.
There are typically three types of cover:
- Accident and sickness only
- Unemployment only
- Comprehensive cover (accident, sickness and unemployment cover)
It’s possible to protect up to 70% of your salary and was designed to replace your income, paying out a tax free sum to take away the pressure and stop you from falling into financial hardship whilst you cannot work.
When taking out your first life insurance policy it is always worth speaking to a trained adviser who can take the time to listen to your needs and point you in the right direction.
Never take their first offer, once you know what you need it is prudent to shop around to make sure that you can’t get it cheaper elsewhere, or get more cover for the same priced policy.
One thing is for sure, if you do have children or a mortgage, I cannot recommend you protect yourself with life insurance enough.
The last thing anyone wants is to know our families would struggle in the event of our death.
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