Life insurance is a must-have for most people. It’s the only way to ensure that your family will be financially secure if something happens to you. It can also help pay off debt or provide support for mortgage repayments and funeral costs.
But what type of life insurance policy should you choose? There are many different types of policies available, each with their own pros and cons. The best choice depends on your personal circumstances and financial goals.
Why should I buy a life insurance policy?
Buying life insurance isn’t just about protecting your loved ones from financial hardship in case you die. It’s also about providing them with an income after you’re gone. A life insurance policy can support your family with finances, such as:
If you don’t have enough money saved up to cover your debts or other bills, then it could leave your family struggling. This could result in them having to sell their home or even go into debt themselves.
Types of Life Insurance Policies
There are three main categories of life insurance: term, whole life and joint. Each has its advantages and disadvantages, so choosing one over another requires careful consideration.
Term Life Insurance
A term life insurance policy provides coverage for a specific amount of time (usually 10-30 years). If you die during this time, your loved ones receive a cash lump sum. Premiums for term insurance are generally cheap, because it only protects you for a limited time, as opposed to the rest of your life. However, it may not be enough coverage for some families.
There are 3 types of term life cover…
Level term life insurance
This is the standard form of term life insurance. You pay a small premium every year for a set period of time. During this time, both the cost of your premiums and death benefit remain fixed throughout the policy. It’s an ideal option for families looking for coverage for a certain amount of time.
Decreasing term life insurance
This type of cover is often referred to as mortgage life insurance. The death benefit of your policy decreases over time as you make repayments on your mortgage. This way, if you die before it’s repaid, your family is left with enough money to cover the outstanding balance.
Increasing term life insurance
Increasing term insurance is a popular choice among many people, because it protects your policy’s value against rising costs. The pay out of the policy increases over time to match the rise in inflation. This way, your family still receives the same amount of money.
Whole life insurance (also known as life assurance) pays out a fixed lump sum to your loved ones when you die. This type of policy is ideal for people who want to ensure that they receive a payout no matter what happens during their life. With this type of cover, your premiums remain fixed throughout the policy, even as you get older or develop medical conditions.
Whole life policies typically have higher premiums than term plans, as cover is permanent. Though they are usually more expensive, whole life plans offer peace of mind knowing your family receives a payout regardless of when you die.
Joint life insurance
If you’re married, you might consider buying joint life insurance together. Joint life insurance combines two separate policies into one, which means you’ll pay less overall. The policy usually pays out after one of you dies. The surviving policyholder then has enough money to cover any debts and expenses.
Alternatively, you can choose to have the policy paid out after you pass away. The money can then go to your children or other beneficiaries. It can be used to help them buy their first home or cover their university tuition.
The key thing to remember about all these options is that they protect you from financial loss. They don’t provide an income replacement like pension schemes do.
How much cover will I need?
Ideally, you’ll want enough cover to meet your family’s needs – whether they are paying off a mortgage or keeping up repayments, settling any debts and paying for general living costs. You’ll also want to consider what happens if you die unexpectedly.
If you have children, for example, you’ll need enough cover to meet their needs while they grow up and take care of themselves. You’ll also need to factor in any outstanding debt, such as mortgages and loans.
You’ll also want to think about how much you earn and spend each month. If you’re earning a lot but spending most of it on bills, you may not need as much cover as someone who earns little and spends everything on holidays.
What else should I know?
There are some things you should keep in mind when choosing a plan. For instance, you’ll want to check whether your employer offers life insurance. Many companies do, so it’s worth asking your employer..
Also, make sure you understand the terms and conditions of your policy. Some policies come with annual fees and charges. These could eat into your savings and increase the cost of your policy.
Another option you should consider is using an online life insurance broker, such as Cavendish Online. They can provide advice as to which policy is right for you based on your circumstances. Furthermore, they can help you find and compare affordable life insurance quotes from leading providers.
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