Not a subject to be avoided

Generally people try to avoid thinking about their own mortality and the inevitability, and sometimes arbitrary, nature of death.

But to put it bluntly, you never know what is around the corner; and the cold, hard fact is that you cannot afford to ignore the possibility of a premature, untimely ending to your life.

Can you imagine, if the worst happened, how your family would cope, not only with the bereavement, but with financial hardship?

It is an uncomfortable issue, but it is one that there is no getting around; ensuring the availability of financial support for those who are dependent upon you, in the event of your death, is of paramount importance.

Needless to say then that Life Insurance comes extremely highly recommended.

Getting a life insurance policy

Before you buy a life insurance policy you must determine who it is that you need to support and how much they would need.

The people you might want to protect include your partner, your children, and any other dependent relative. Of course, if nobody is dependent on you, you do not need life cover!

The amount that you decide that your dependents would need is your ‘sum assured’ and it is this sum, along with your sex, age, state of health and other important details that will determine the amount of your monthly payment for the insurance cover, known as your ‘premium’.

Types of Life Insurance

The two basic types of Life Insurance in the UK are term insurance and whole-of-life insurance.

Term assurance

Term assurance is the cheapest and simplest form of life insurance. This type of insurance covers a fixed period of time and is often taken out when you commit to your biggest financial outlay, buying a house for example.

The insurance will ensure that, in the event of your death, the worries of those you leave behind will be lessened by the fact that your mortgage will be paid off and their housing will be secured.

On expiry this type of policy has no value, with no partial return of payments. There are a number of different types of term assurance, with level term and decreasing term being the most common.

In addition to these, there is a further selection of policies that are designed to be suitable to the specific needs of the individual.

• Level Term

Level term insurance involves a fixed, lump sum payout if the policyholder dies during the term of the policy. The customer is required simply to choose the amount of the potential payout, and the length of the policy term, and their premium will be calculated accordingly.

• Decreasing Term

Decreasing term insurance involves a diminishing payout over the term of the policy. This type of policy is often used to cover mortgages due to the nature of the diminishing payout and how perfectly it coincides with the decreasing amount that will be owed to a mortgage lender over time.

Whole-of-life insurance

Whole of life insurance, as is implied by the name, will be in place for the entirety of your life, and it guarantees a payout when you die. Due to the nature of these policies, and the certainty of a guaranteed payout, the premium is much higher for this type of insurance.

As with term assurance there is a number of different whole-of-life policies available, ranging from investment-linked options to offerings that outline a set payout sum from the outset.

With investment-linked policies the payouts depend upon the performance of the investment, this option tends to be popular amongst customers.

With this type of policy though, your premium can fluctuate as it is reviewed periodically, the reviews tend to be every ten years. As a result of a review the premium can go up or the insurance company may opt to decrease the cover offered.

Convertible Term Insurance refers to the option of converting a term insurance policy to whole-of-life insurance when the term of the policy comes to an end. This type of conversion often does not require the submission of any new medical details.

Critical Illness Cover

This type of policy, or policy extension, allows for financial support and cover in the event of a number of different impairing conditions which do not necessarily have to be fatal.

The cover offers a lump sum payout upon diagnosis of a condition; it is not something that is granted for the treatment of a condition. Treatment related support is a different matter altogether and is offered by health insurance policies.

Things that tend to be covered by critical illness insurance include strokes, cancer, loss of limbs, heart failure and the list goes on. It is of utmost importance to be completely sure of exactly what is covered by any given policy, and which conditions are not eligible for a payout.

Generally basic coverage will include only the main critical illnesses such as cancer.

More comprehensive policies though can be more specific to the individual policyholder and cover a vast range of conditions.

The importance of full disclosure of your medical history when applying for critical illness cover cannot be underestimated. It is vital that any medical conditions are disclosed, in full, to prevent your cover from being void and ending up with a denial of payment in the event of an illness being diagnosed.

And finally

With the vast range of policies available, signing up to one that is not quite right for you, as an individual, is easily done.

Therefore, if you are planning on taking out life insurance then it is highly recommended that you seek independent advice before you take the plunge.

The market knowledge of an independent professional and their ability to break down policies and explain the ins and outs to you can prove invaluable in your quest to find the most appropriate policy.

And remember, once you are signed up to a life insurance policy, it is a good idea to review your protection annually (at least) to ensure that any changes to your family situation or employment circumstances are reflected in your policy.