Life Insurance

What it does

Life insurance (sometimes known as life assurance) will pay out either a single lump sum (sum insured) or a regular income when you die. It can help provide financial security for people who depend on you, if the worst happens.

Why you might need it

Although no amount of money can replace a loved one, it can help those left behind to weather the financial storm left in your absence. For example, it could pay off your mortgage or provide an income to go towards regular household expenditure.

1. Term insurance

This is the simplest type of life insurance. You choose how long you’re covered for, eg. 20 years (the term), and the policy pays out if you die within the agreed term. You can also take out term cover as a couple, with the policy paying out on the first death only during the term. There are several different types of policy:

• Level: The amount of cover and premiums remain the same
• Increasing: (or index-linked): The amount of cover and premiums gradually rise in line with inflation
• Decreasing: The amount of cover will reduce over the policy term; this is often used in conjunction with a repayment mortgage, where the amount of the loan outstanding reduces each year
• Renewable: You can extend the original term of the policy
• Convertible: Lets you convert the policy to whole of life insurance

2. Family income benefit insurance

This is essentially the same as term insurance, but instead of a lump sum pay out on death, there is a regular income paid to your beneficiaries. This type of policy may be more suitable if your main requirement is to ensure that your dependants are provided with ongoing financial support.

3. Whole of life insurance

Whole of life insurance pays out a lump sum when you die, whenever that is, as long as you are still paying the premiums.