Life insurance is a type of financial protection that provides benefits to your family in the event you die. It can be used for many different reasons, such as paying off debts or providing for your children’s education.
One of the main types of life insurance cover is term life insurance. This type of policy covers you for a set period of time, providing a cash lump sum for your loved ones if anything happens to you. As the standard type of life cover, it is a popular choice for people who are looking for an affordable way to protect their families. However, there are some things you should consider before buying this type of policy.
1. How much cover do you need?
The amount of life insurance you need depends on the financial circumstances of you and your family. You might want to plan ahead for funeral costs, household bills, children’s education fees, home renovations and long-term care. Or you want to ensure your loved ones are taken care of financially if something happens to you.
If you’re planning to buy a house within the next few years, you may also want to take out a mortgage life insurance policy. These policies provide additional cover for your mortgage lender, which means your family won’t have to repay the loan if you pass away.
You also need to consider how your death affects your family financially. For example, how much of your monthly income do they require? If they depend on you to provide an income, then it’s likely you’ll need to buy more cover.
2. What kind of policy would suit you best?
When it comes to buying life insurance cover, there are two main types of policy to choose from – whole & term cover.
Term life insurance
This type of cover gives you peace of mind knowing that your loved ones won’t be left without financial support when you die. It is a type of life insurance policy that provides coverage for a specific period of time, for example 20 years.
Your family receives a cash lump sum, providing that you die within the agreed policy term. If not, the policy expires, and you will need to take out further coverage if required. Term policies often have lower premiums when compared to whole life cover. However, you only receive cover for a limited time.
There are 3 types of term life cover:
- Level term – The most common form of term life cover. Your premium and pay out value remains fixed throughout the policy term.
- Decreasing term – Typically taken out alongside a mortgage. The payout decreases over time as repayments are made. If you die before it’s repaid, your family will receive enough money to cover the remaining balance.
- Increasing term – The payout value of your policy increases overtime to protect it from inflation. However, your premiums may also increase as a result.
Whole life insurance
A whole life insurance policy is designed to last for the rest of your life. It can help protect your family from financial hardship after you’ve passed away. A typical whole life policy has no end date, meaning you’re covered indefinitely.
Whole life policies usually come with higher premiums than term policies, however both the cost of your premiums and payout value remain fixed. And because they don’t expire, they offer greater protection than term life cover. They also typically have better investment options available.
You can also get joint life insurance, which covers two people under one policy. This is useful if you and your partner share an income or mortgage. The policy either pays out after the first death in the couple or once both policyholders have passed away.
3. Can you afford term life insurance?
If you’re thinking about taking out a term life insurance policy, you should check whether you can afford it. You could find yourself paying too much for cover if you aren’t careful.
Each month, you pay a premium to your chosen insurance provider. The amount you pay depends on several factors, including:
- Your age
- Current health
- Family medical history
- How long you plan to keep the policy
- Whether you opt for level or decreasing term cover
You may also need to answer some health and lifestyle questions, such as whether you have any pre-existing conditions or smoke. You are required to answer these questions truthfully, otherwise any claim made against your policy could be denied.
4. How can I get cheaper premiums?
If you’re looking for cheap life insurance, term life cove is the right choice for you. Although it’s already one of the cheapest types of cover available, there are a few ways you can lower your premiums.
The cheapest way to buy term life insurance is by shopping around. There are many different companies offering this kind of cover, so make sure you compare prices carefully.
You should also consider buying cover at an early stage, when premiums are at their lowest. As policies like level term life insurance offer fixed premiums, buying cover early can lock in a cheap premium.
Smoking also has an impact on the cost of your premiums. If you smoke, you’ll likely face higher costs as a result of increased risk of developing health problems. You may be able to reduce your premiums if you remain smoke-free for at least 12 months.
5. What happens if I survive the policy term?
Term life insurance doesn’t provide any benefits once you reach the end of the policy. So, if you want to ensure your loved ones receive a benefit after you’ve passed away, then you’ll need to look into whole life cover instead.
Term life insurance doesn’t automatically renew at the end of its term. Instead, you’ll need to apply again to continue paying premiums.
However, you won’t be able to change your choice of cover until you’ve paid off your existing policy. So if you want to switch to another company, you’ll need to cancel your current policy first.
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