A term life insurance policy provides a lump sum payment to a specified beneficiary upon death. It protects the family from financial difficulties. Critical illness and life insurance are regularly sold as a package as being diagnosed with a terminal illness is equally destructive. Having no life insurance leaves a family in a very vulnerable situation.
Types of Term Life Insurance
- Level term life insurance. This offers an identical amount of cover no matter whether the policy holder dies the next day or after 15 years.
- Decreasing term life insurance. The amount of cover reduces each year. Decreasing term life insurance is usually used as a means of mortgage protection in conjunction with a repayment mortgage.
- Increasing term life insurance. The amount of cover increases each year to keep pace with inflation.
- Convertible term life insurance. This allows the policy holder to switch to a different type of cover at a later date, such as a whole of life policy.
- Family income benefit. Instead of a lump sum payment, a family is paid a regular sum of money until the end of the policy.
Who Should be Covered by Life Insurance?
Whilst the main bread winner is usually the person who is covered, it doesn’t mean that the other partner shouldn’t be. For example, how much would it cost to pay for child care costs or to hire a live-in nanny? It can be more cost effective to arrange a joint life insurance policy.
How Much Life Insurance Cover is Needed?
This can be a difficult question to answer, but it should be at least enough to pay off the mortgage. Whether further cover is needed will depend upon many factors, including: schooling fees, business interests, outstanding debts and general living expenses.
What is the Cost of a Life Insurance Policy?
The cost of the policy will depend upon how much cover is needed, smoker or non-smoker, pre-existing medical conditions, sex, age, family medical conditions and number of people covered by the policy. The information provided is then passed onto underwriters to calculate the monthly premium.
Tax Implications
A life insurance payout is not normally taxed, although it does form part of the deceased’s estate so could potentially be liable to inheritance tax. Consult a solicitor or financial advisor about placing the life insurance policy into trust if this is likely to be an issue.
Compare Life Insurance Prices Online
The majority of people buy their life insurance policy from their bank, but it is more sensible to compare life insurance prices using an online checker. This will trawl the entire market to identify the product that has the most suitable coverage at the best price.
For our UK users using an online broker (completely free of charge) such as Reassured – Life Insurance could be a cost-effective and convenient way of comparing multiple quotes.
Other Considerations When Choosing Life Insurance
When choosing life cover, always talk to the financial institution to find out their attitude towards claims. A number of institutions are looking for ways to reject claims so try to gauge their attitude to this. Seek to do business with companies that are working from a position of financial strength.
It is also important to remember that term life insurance is only one source of protection policy. It is vital that payment protection insurance is also considered in case of involuntary unemployment or ill health.
Taking out term life insurance can give a family genuine peace of mind as it helps cover mortgage payments and other expenses. It is important to do plenty of research before choosing a provider as this decision could potentially make a world of difference should the worst happen.
Guide to Family Term Life Insurance
A family term life insurance policy provides the insured with coverage for a defined period of time, typically 20 to 25 years, in the event of death. This could be to clear the mortgage, a car loan, credit card debt or pay for school fees. It provides an affordable alternative to a whole life policy because it doesn’t need to cover that person in the latter years of life when the risk is greatest. A term life plan is put in place for when a family stands to lose most due to a sudden and permanent loss of income. The policy can be in one or both names with the survivor receiving payment.
The Cost of a Term Life Plan vs Whole of Life Insurance Premiums
A family term life insurance policy provides the least expensive coverage because the risk of death is lower earlier in life. It is possible to reduce the cost further by taking out decreasing term mortgage insurance. This is a variant of level term and pays a reduced lump sum as the amount of debt starts to come down. Whole life insurance is far more expensive because it guarantees to pay out a cash lump sum regardless of the age of death. Some of each premium needs to be invested in order to cover costs later on and ensure that there is sufficient money in the investment pool.
Getting a Family Term Life Insurance Quote
Although term mortgage insurance will need to be underwritten by an actuary (the quote often changes after this happens as it reflects that person’s choice of lifestyle and current health), it is very easy to get an online quote for a term life plan. There are a number of comparison websites, such as moneysupermarket.com, that specialise in trawling the market for the most competitive deals. What they don’t do is assess whether a level term life insurance policy offers value for money. It is advisable to use a brokerage service to compare all the features relative to the monthly premium. A broker is paid a commission by the insurance provider.
Term Mortgage Insurance Has No Cash in Value
While a whole life policy invests a percentage of each premium in bonds and equities in order to build a substantial sum of money, this isn’t the case with a term life plan. Each premium is carefully calculated and goes specifically towards the cost of securing adequate mortality protection. Should someone stop paying the premiums, there will be no cash payment. It works in the same way as insuring a house. Many families choose to take out level term life insurance and invest any additional money in equities.
How Much Family Term Life Insurance is Necessary?
Level term life insurance is fundamentally important for a young family, especially if they have a mortgage and/or debts. The amount of coverage needed will vary considerably. It is important to talk to an Independent Financial Advisor (IFA) in order that they can evaluate the client’s personal circumstances and decide which policy should be selected. The sooner a term life plan is commenced, the less expensive it will be.
