- Do I need Life Insurance & how does it work?
- What types of cover are available?
- How much does Life Insurance cost?
- Can I add Critical Illness Insurance to my policy?
- Do I need to write the policy into Trust?
Do I need Life Insurance & how does it work?
If you have a partner, children or loved ones that would be financially impacted by your death, then you probably need Life Insurance.
Life Insurance won’t bring you back – but it will reduce the financial stress and impact caused by your death.
Life Insurance is one of the simplest protection products as it is designed for one primary purpose; to pay out a lump sum upon death. The benefit payment is paid to your family and loved ones to help provide financial security under such difficult circumstances.
If the policy has been set up correctly, the benefit is paid out tax-free to your chosen beneficiaries and can be used to clear loans and mortgages as well as provide for funeral expenses or your family’s ongoing lifestyle expenses.
There are various types of cover to consider and it is important to select the right one depending on your circumstances and what you want the funds to be used for after your death.
You will need to make sure your policy provides you with an appropriate level of cover and is the best option for your individual circumstances. We can help guide you to find the right policy for your individual needs.
The three most common types are Level Term Cover, Decreasing Term Cover and Whole of Life Cover.
What types of cover are available?
Level Term Cover
Designed to pay a fixed lump sum at any point during the term of the policy. Often used to cover interest-only mortgages, funeral expenses or towards a family’s ongoing living costs.
When taking out Level Term Cover, you simply specify an amount of cover (the sum assured) which is the amount that would be paid by the provider if you were to die at any time during the term of your policy.
Decreasing Term Cover
Normally used in conjunction with a repayment mortgage to provide a lump sum that could be used to repay the mortgage upon death. The amount of cover (the sum assured) reduces gradually over time roughly in line with the balance of the mortgage.
Usually the most cost-effective form of Life Insurance as the risk to the insurer declines over time as the balance of your cover falls.
Whole of Life Cover
Often used to cover funeral expenses, Whole of Life cover (as the name suggests) provides cover right up until the death of the policyholder rather than over a specific term. Unlike term-based insurances, the benefit payment from a Whole of Life plan is effectively guaranteed providing that the policyholder continues to pay their premiums up until death.
Joint or Single?
A Joint policy provides cover for two people but under one policy. It’s often a little bit cheaper than buying two individual policies but may not always be the best option.
A Joint policy will pay out once, potentially leaving the surviving partner without any cover.
If you have the budget available, then it is often worth taking out two individual policies. If set up correctly, we can often arrange two individual policies, providing independent protection for both parties, at a marginal cost difference to a Joint policy.
How much does Life Insurance cost?
Life Insurance tends to be far more cost-effective compared to other protection policies, such as Income Protection and Critical Illness Insurance, given that you are much less likely to die during the term of your cover than you are to suffer an illness or injury.
However, a lot depends on your medical history, how much cover you need, your age and whether you smoke.
If you are Self-Employed, it may be more cost-effective and tax efficient to consider arranging cover through your business in the form of Business Protection. In this scenario, the cover is taken out and paid for as an expense through the business.
Can I add Critical Illness Insurance to my policy?
Because the likelihood of suffering a critical illness is substantially higher than that of dying, many people look to include Critical Illness cover in their policy.
This can be taken out in conjunction with or in isolation to your Life Insurance policy.
For more information, read our Critical Illness Insurance guide.
Do I need to write the policy into Trust?
Placing your Life Insurance policy into Trust ensures that the right money, goes to the right person and at the right time.
Under a Trust scenario, the benefit is paid directly from the provider to the trustees to be distributed to your nominated beneficiaries.
Placing your policy into Trust is the best way to ensure the funds are paid out quickly and the lump sum benefit reaches your chosen beneficiary’s free of any tax.
We can help you to make sense of the Trust process and can assist you in placing your policy into Trust at no cost.