Types of Life Insurance Cover

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By Crispin Bateman
Updated on Tuesday 18 February 2020

Could your spouse continue paying the mortgage if you were no longer around? Would your children cope without your financial backing? How would you afford to live if you were too ill to work? One simple solution to these concerns is life insurance.

paper family life insurance

But what is life insurance? It is an agreement between a policyholder and an insurance provider, where the insurers are obliged to pay out an agreed amount of money if the policyholder dies or becomes critically ill (depending on the type of policy in place). In return, the policyholder must pay monthly premiums.

People usually take out life insurance to provide their loved ones with financial support when they’re no longer around, or to cover themselves if ever they are unable to work due to a critical illness or injury.

There are several types of life insurance policies available in the UK to suit all different needs and requirements, including (but not limited to) the following:

It can be quite overwhelming to get your head around all the different types of life cover on offer, so here’s a breakdown of each policy, their main features, and who they could benefit.

What is whole of life insurance?

Whole of life cover is the simplest form of life insurance – you pay premiums every month and, when you die, the insurers are guaranteed to pay out an agreed lump-sum to your family (subject to your policy terms and providing you were truthful when applying for life cover).

Whole of life cover is often purchased as funeral cover, because it stays with you for your entire life and pays out upon your death,, no matter when that is, and it makes sure that your family do not have to shoulder any costs associated with your death (including inheritance tax bills, debts, and funerals). Whole of life premiums can be more expensive than some other types of cover, as your family are guaranteed to receive a pay-out  at some point.

Term life insurance policies

Term life insurance, unlike whole of life cover, only covers the policyholder for a fixed amount of time; it has a start date and an end date.

The advantage of this is that the premiums usually cost significantly less than whole of life cover, as it is not a guaranteed payout.  

The disadvantage is, of course, that your family will not receive a pay-out if you outlive your policy’s terms.

Term life cover is often taken out for the duration of a mortgage, to ensure that their spouse isn’t left with huge debts when they’re no longer around.

There are two main types of term life cover: level term life insurance and decreasing term life insurance (or assurance).

What is decreasing term life insurance?

Decreasing term life insurance is by far the most common type. It is often required to cover mortgage payments and secure the family home if the worst should happen.

Decreasing term life assurance is a cost-effective policy tied to the remaining mortgage amount. It is called ‘decreasing’ as the sum assured (the amount paid out to your family when you die) is lowered as the months go on to match the remaining sum of the mortgage.

This way, the pay-out is always enough to clear any outstanding mortgage payments while reducing the risk for the insurers, thus resulting in lower premiums. It’s a win-win situation for both the policyholder and the insurer in many ways.

Decreasing term insurance is surprisingly affordable and a definite must for anyone with a mortgage and dependants.

Bear in mind that you will no longer be covered once the term ends, so think of it more as an insurance policy to cover certain elements of your life, such as your mortgage.

For obvious reasons, it is also known as mortgage life insurance.

What is level term life insurance?

Level term cover is designed to provide a fixed lump sum to your loved ones in the event of your death.– For example, you set the length of the level term policy (e.g. 20 years) and the amount of cover (e.g. £200,000), and if you died within that 20-year period, the policy would pay out the full lump sum (subject to your policy’s terms). The amount of cover and cost of premiums stay the same throughout the policy term.

Level term premiums are often considerably more expensive than an equivalent amount of decreasing term cover, but the amount that is paid out never decreases.

Level term policies are usually put in place to cover family expenses upon an unexpected death, such as university fees, or providing children with a start in life.

For this reason, the policy’s term is usually designed to come to an end when the policyholder believes that it is no longer needed – for example, when their child leaves university or reaches 21 years old.

Over 50s life insurance

It can be difficult to get standard life insurance as time goes on, as health questionnaires are rarely simple affairs. For those over the age of 50 who are looking to get cover despite pre-existing medical conditions, over 50s life cover guarantees a whole of life level of insurance without delving into your medical history.

To cover the higher risk, over 50s policies tends to have larger premiums than the alternatives, but anyone over fifty is guaranteed cover, no matter what. There is no medical check and the only lifestyle choice you will be questioned on is your smoking status.

Over 50s policies are particularly useful for those who haven’t set up life insurance previously and want to cover the cost of their funeral before it’s too late.

What is critical illness cover?

Critical illness cover is slightly different to other types of life insurance, as it pays out when the policyholder is diagnosed with a listed ‘critical illness’, rather than being paid out upon death.

Illnesses covered usually include: strokes, heart attacks, blindness or deafness, organ failure, multiple sclerosis, Alzheimer’s disease and some types of cancer. In many cases, the policy will only cover certain severities of these illnesses, so make sure you fully understand what you’re covered for.

Some critical injuries are also included if you are unable to work as a result, including loss of limbs, for example.

Get your free life insurance quote from Confused.com today using the button below; it takes around three minutes and you’ll be able to see all the best deals for your personal needs and requirements from a wide selection of providers:

Do I need life insurance?

Anyone above the age of 18 can take out life insurance, but it’s rare to think about putting those plans in place at such a young age. And, for many people who have no dependants or major assets, having life insurance might not seem worth it just yet. However, there are a number of strong reasons for taking out a life insurance policy sooner rather than later.

Many people choose to take out life insurance when they have their first child, get married, or buy their first home, due to the financial commitments that all these milestones involve.

Here are a few reasons why you should take out life insurance as soon as you can.

Cheaper cover and guaranteed premiums

Most life insurance premiums are locked at the time of taking out the policy and are primarily based on your age and health. A younger policyholder is going to be paying considerably less for the same cover as a person even ten years their senior, because they pose less risk to insurers. Taking out life insurance cover during your 20s will save you hundreds of pounds in premium payments each year, and the amount you pay will remain the same for the rest of the policy’s term.

Good health equals low costs

Most people are at their fittest during their youth – not only have they got age on their side, but they are generally healthier. This type of health status translates immediately to cheaper life insurance.

Something could happen tomorrow

We don’t like to think of it, but life is full of risks (which is why life insurance exists!). Often, advisors hear about people who were planning to get life insurance and put it off day after day - then something happened and they unfortunately left their family without any adequate financial protection.

So don’t put it off – get covered today!

Remember, taking out life insurance isn’t all that bad – you’re protecting your family and putting a plan in place for the inevitable, regardless of how far away death may seem.

And, what’s more, you can now get life insurance with a free gift to make the process of taking out cover seem a lot more bearable! Gifts include gift cards up to a massive £250 and a free trip to the USA. We don’t advise choosing a policy based on the free gift on offer – always make sure that you are getting the best cover for you and your situation, despite any insurer incentives.

Read more: Life Insurance With a Free Gift

If you’re ready to start looking into life insurance and getting quotes from some of the best UK providers, tap the button below and start planning for the future today.

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