No-one likes to think about this, but how would your family cope financially if you passed away?
If you have dependents who rely on your income, life insurance could provide for their needs. If you’re considering buying a house, some kind of life cover is even more important to prevent your family being left with that debt. Life insurance could pay off your mortgage, pay your funeral costs, and provide a lump sum or income for loved ones. If you currently have no dependents, think about whether this is likely to change in future. Life insurance is cheaper to buy the younger you are, so you may save in the long run by preparing now.
Decreasing term insurance pays out a lump sum if you die during the term of the policy. However the amount of the payout steadily decreases the longer you’ve had the policy. That is, if you die towards the end of the term, the policy pays out less than if you die nearer the beginning of the term. This type of cover may be suitable if you want to ensure that a repayment mortgage is paid off if you die before the term of the mortgage is complete.
Level term insurance is designed to pay a lump sum if you die during the term of the policy. The amount paid out does not decrease over the term, so it allows you to build in enough cover to provide an income for any dependents you may have, as well as paying off your mortgage and funeral costs. For this reason, level term insurance tends to be more expensive than decreasing term insurance. Level term insurance may also be appropriate if you have an interest-only mortgage and you want to ensure it is completely paid off if you die before the end of the mortgage term.
Whole of life cover pays out a guaranteed lump sum when you die. For this type of policy to pay out, you must keep paying the premiums for the rest of your life. You don’t have to worry about getting new cover when the term runs out. The older you are the more expensive life cover becomes, so when a term insurance policy runs out, it can be more expensive to extend the cover. Whole of life cover can also be useful if you want to ensure a lump sum is available to cover legal costs or inheritance tax.
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Brought to you by Peter Dean
MA CA FCMI FABRP MCIArb MIPA
Peter Dean has helped thousands of people with quality money advice, through his well-known company Your Debt Expert. Peter is now helping even more people by offering quality whole-of-market mortgage advice.