No one likes to think about death or how our loved ones will cope after we are gone but this is exactly what life insurance is for. It is designed to protect your family financially so they are not left wondering how they will cope on top of dealing with their grief.
People have many different reasons for taking out life insurance but usually it is to make sure that your family are able to cope without your income. It can be taken out either individually or as a joint life policy.
There are some policies that will also offer you a payout after the diagnosis of a terminal illness. There are some drawbacks however. If the term of your policy expires without the occurrence of your death then you will receive no payment. Also if you do not keep up with your payments then you can expect your policy to be cancelled and for you to receive nothing.
You need to look into which type of life insurance is best for you as there are many to choose from and the terms and conditions of each are very different.
If you want a guaranteed lump sum payment on the event of your death during the policy term then level term insurance would be a good option. This is a fixed sum that will remain the same no matter how far through the policy you are. Convertible term insurance is exactly the same as this apart from with this you are able to switch to endowment or whole life insurance.
Decreasing term insurance is where the sum goes down during the term of the policy. This is designed to protect capital and interest repayments on a mortgage. It is also known as mortgage protection cover.
If you want a policy that has the option to keep going beyond the policy term then renewable term insurance should be a consideration. You aren’t required to have a medical review at the end of the term you can just automatically renew it.
If you are worried about the affect of inflation on your payout then an increasing term insurance could be the one for you. This combats the affect of inflation with an assured sum that increases each year of the term.
Another option is index linked term insurance. This offers you a payment that goes up each year alongside the retail price index.
When you take out a mortgage you will often be offered an endowment insurance. This could be described as a savings scheme with life insurance included. It offers a payout both at the end of the policy term and also on the death of the policyholder.
As its name suggests whole life insurance means that a lump sum will be paid out on the death of the policyholder whenever that may be provided that the payments are maintained. In other words the policy runs for their entire life.
All policies give you the option to add extra benefits, although they may vary. An option that may be worth considering is called family income benefit. Rather than getting a lump sum payment your family would receive regular payments over time which they may find easier to manage.
Critical illness cover is also an option. It protects you if you receive a critical illness diagnosis. There will be a list of which illnesses are included. Waiver of payments is another extra that you can add. If you were to have to give up work due to health issues then this would make sure that your premium payments are maintained.