The best type of life insurance will depend on your individual requirements. For example:
- Do you have a mortgage?
- Do you have children?
- If so, how old are your children?
- Do you want to leave an inheritance?
- Could you cope financially if you were unable to work?
There are a variety of different policy types available, each suited to covering different aspects of your life. These include:
- Term based life insurance
- Life assurance (whole of life insurance, over 50s plan)
- Income protection
Therefore, the best type will be the one that provides the most suitable cover for what it is you're wanting to protect.
But how do these policy types work and what’s the difference?
Term-based life insurance
Term-based life insurance provides cover for a specified period of time.
If you pass away within this predetermined time frame a lump sum pay out will be made to your loved ones.
Level term life insurance provides a fixed lump sum which holds its value throughout the life of the policy.
This makes it ideal for protecting fixed costs, such as an interest-only mortgage or providing an inheritance.
Decreasing term life insurance, on the other hand, provides a lump sum pay out which reduces throughout the life of the policy.
This makes it more suitable for covering such aspects as a repayment mortgage, which reduces over time.
Finally, family income benefit provides ongoing, tax-free, monthly payments for the remainder of your policy if you pass away.
This makes it well suited for replacing a lost income or covering day-to-day family living costs.
Speaking to a life insurance expert, such as Reassured can help you to determine the right policy to meet your needs.
We can provide you with all the information you need to make a fully informed decision.
Life assurance
You may have wondered what the difference between life insurance and life assurance is?
Life insurance pays out if you pass away during a term, whereas life assurance pays out when you pass away (hence, the assured).
An example of life insurance would be level or decreasing term cover, which only pays out if you pass away during the policy.
An example of life assurance would be an over 50s plan or whole of life cover, where a pay out is guaranteed
Whole of life insurance provides life long cover and, as a result, can be used to cover large expenses or provide an inheritance for your loved ones.
Due to the longer length of cover, it’s best suited to those in later life who are in good health.
This is because it's possible to pay more into the policy than the overall sum assured.
An over 50s plan offers guaranteed acceptance for all UK residents aged 50-85 years.
The sum assured remains fixed but is significantly lower than other policy types, making it more suited to covering funeral costs or an inheritance.
Income protection
Rather than paying out when you pass away, an income protection policy will pay out to you to help replace lost income if you become unable to work.
You’ll be covered for accident and sickness that prevents you from working for a prolonged period of time.
Typically, providers will pay out between 50 - 70% of your usual income.
You’ll be paid in monthly, tax-free instalments that will help you to cover essential financial commitments such as rent, mortgage payments, bills, childcare costs as well as other daily living costs.
Your payments will continue until you return to work, the payment period outlined in your policy comes to an end, you retire, the policy expires.
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