Understanding Life Insurance
Many people think life insurance is complicated, but it’s actually quite simple – you pay into an insurance policy every month, knowing it will pay out a sum of money to your family if you die.
If something happens to you, these payouts can make a real difference to spouses, children and anyone in your family dependent on your income. It can help your loved ones cover the cost of a mortgage, childcare fees, pay off debt or help with the cost of a funeral. They can have peace of mind that there’s help to lift a financial burden when you’re gone.
There are several types of life insurance suitable for different circumstances and stages of life. It is important to pick carefully so that the policy meets your needs and those of your family,
Life insurance that covers the whole of your life is available, but monthly payments can be high. Another possibility is term insurance, which runs for a fixed time. This may be more affordable, especially if you take it out when you’re relatively young. Most policies are available as either single or joint policies, which can cover one or both of you.
Different types of life insurance
Perhaps one of the best-known terms of life insurance, level cover provides an exact amount of coverage that doesn’t change. This means that if you die at any point during the term of your policy, your family will receive the same amount of money, regardless of inflation or how close the policy is to its end.
Monthly payments made for level cover do not change and the policy runs for a specific term. Once the policy ends you would have to take out another policy if you still need insurance.
If your mortgage or other debts are going to shrink over time, or you can see a point when your family will become financially independent, decreasing cover can be a good-value term insurance option.
With this type, the payout on death reduces gradually over the term until the policy ends. Taking out this sort of policy ensures that a gradually reducing repayment mortgage can be cleared if you die.
Family income benefit
For wage earners worried about helping their family with day-to-day living costs in the event of their death, family income benefit could be a solution. It pays out a regular tax-free income to your family, so can replace missing earnings.
The income is paid only until the end of the policy term, so if you take out a 20-year policy and die 10 years into it, your family receives the income for 10 more years. If you die 18 years into the policy, they get the benefit for only two years.