How to make sure you get the right life insurance for you
It’s the policy that none of us really want to think about but if you have any dependents, life insurance is one of the best ways of looking after their needs should the worst happen.
However, with so many different types of policies available it’s important to be able to choose the right one for you and your family so that everything you need to cover is covered, as well as ensuring that you are not paying for any features that you don’t need.
What are the different types of life assurance?
The basic criterion of a life assurance policy is that it pays out a lump sum on the policyholder’s death. Beyond that there are a bewildering number of permutations and combinations and a baffling array of jargon.
The two broad areas of life insurance are protection only and investment.
- Protection only:
Known as “term insurance”, protection-only policies pay a specified amount if you die within a defined period. If you survive it pays out nothing.
Within this category there are various different types of policy including decreasing term (more widely known as mortgage protection) where the sum decreases commensurate with your mortgage commitments; level term, which pays out an assured sum that remains unchanged throughout the term; and increasing term which is linked to inflation.
One of the most popular forms of investment life assurance is the endowment policy. This is essentially a savings scheme with the added bonus of life insurance and pays out a sum of money if you die within a certain period OR pays a sum of money out at the end of that agreed period if you survive.
This sector also includes “Whole Of Life” insurance, which guarantees the payment of a lump sum when the policyholder dies whenever that is (as long as you keep up with your payments).
Again, there are various types of whole life policy including non-profit (where the cash sum is fixed) and with profit (which pays a fixed cash sum plus any profits made on the investment, varying terms are available).
Your choice of life assurance is going to be dictated by several factors. First of all, look at your family circumstances – do you have a mortgage? Would your partner be able to continue to make mortgage payments in the event of your death? If not, then mortgage protection is a must.
If your partner is looking after children and unable to replace your income in the event of your death, then you should consider a policy that replaces your income and perhaps considers extra expenses such as childcare or school fees.
Once you have addressed your needs you can then look at what else you can afford – for example, do you want to leave something for your children in the event of your death? Do you want to enter into a life assurance policy such as an endowment purely for investment purposes?
Whatever your requirements, once you understand what is available you can use online resources such as Motley Fool Life Insurance Comparison or an online personal finance site like ASDA Finance, to make your decision easier.