Willow Financial Solutions’ independent financial adviser, Becky Hammonds, looks at the different types of life cover and which is best for your needs.
Following the advent of the Covid pandemic, there has been an increasing demand for life cover but as with so many things, not all policies are equal. Cheaper policies may not cover pandemic diseases, so check the small print.
There are different types of life insurance policies available, with varying levels of cover, and the price of premiums can vary massively.
The right life insurance policy depends on your individual circumstances. Consider the following:
- How long you need the protection to last for?
- How much do you want your life insurance to pay out?
- How much can you afford to pay in premiums?
There are two main categories of life cover: term insurance and whole-of-life assurance.
Term insurance
Term insurance is the most popular kind of cover because you can set it for a certain time frame, called the term. It pays out a lump sum or a monthly income if you or your partner die within this set period. If you don’t die, the policy simply lapses and you get nothing back.
Whole-of-life assurance
Whole-of-life assurance, as the name suggests, offers protection for your lifetime until your eventual death, whenever it occurs, and therefore premiums are much higher. But there is a guaranteed pay out whenever you die or, with many, if you are diagnosed with a terminal illness.
The most common/popular types of life insurance
There are several types of term insurance, from level term to decreasing term, so it’s important to understand which is likely to suit your needs best.
- Level term insurance: Pays out a fixed lump sum if you die during the policy term. This lump sum won’t change over time, so you know the sum in the event of a claim.
- Decreasing term insurance: Covers a debt that gradually reduces over time, such as a repayment mortgage. With this type, any pay out also reduces over time, which means the premiums are understandably lower than for level term insurance or increasing term insurance.
- Convertible term insurance: As its name suggests, convertible term insurance enables policyholders to convert their policy into a whole-of-life policy should they wish to. With this, the insurer is obliged to convert the policy regardless of any changes to the policyholder’s health.
- Renewable term insurance: With renewable term insurance, policyholders have the option to renew their life cover when the policy term finishes without the need for a health review.
Single or joint life insurance?
If you are married or have joint financial commitments with a partner, or even a relative, a joint life policy rather than two single policies may be appropriate. This type of life insurance tends to be cheaper than if you had two separate plans.
Remember, a joint life insurance policy only pays out once and would leave the surviving person without any life insurance. With two single life policies, if the first one dies, the surviving person still has their own cover.
Both single and joint life insurance policies have their own pro’s and con’s. Here are a few factors you should consider:
- Budget – one joint insurance life policy could be more affordable than two single life insurance policies (this would depend on personal circumstances).
- Cover – do you both have exactly the same life insurance need? Would one or two plans be the most appropriate?
- The future – if a relationship breaks down, it’s possible that an insurance provider would not be able to divide a joint life policy into two single policies.
If you claimed against a joint life policy, the surviving person would be left without life cover. Applying for life insurance later in life can be expensive because premiums increase with age.
If you would like specific help and advice or are looking for an independent appraisal of your situation, contact Becky Hammonds on 07969 269677 or email becky@willowfs.co.uk.
