Life Insurance and Term Assurance
Why should I take out an insurance policy?
What is Life Insurance?
Have you ever worried about how your family would manage if the main salary earner passed away? A life insurance policy can help relieve that worry.
Life assurance pays out a lump sum when the person who is covered by the policy dies. The money provided is intended to pay off any outstanding debts and support your family financially by providing them with a further lump sum or a regular income if you die.
The correct name for this type of protection plan is life ‘assurance’ instead of life ‘insurance’ because death is at some point guaranteed – so you are ‘assured’ that the plan will definitely pay out one day as long as you have paid all the premiums and you die whilst the plan is in force. In return for paying the premiums, the insurance company will pay out the agreed amount – known as the ‘sum assured’ – if you die during the term of the policy.
Premiums are normally paid to the life insurance company on either a monthly or annual basis for a fixed period of time or in some cases, until death eventually occurs. The cost of these plans varies according to your personal circumstances such as age, previous medical history and the amount of cover you require.
Do I need Life Insurance?
If you have any financial responsibility to someone else (such as a mortgage), it is likely that you will need some form of life insurance.
You can also use life assurance as a strategy to reduce the impact of inheritance tax for your family when you die.
In most cases, the minimum amount of life insurance you should have in place needs to be enough to settle any outstanding debts and cover funeral costs. The amount of life insurance you need depends entirely on your personal circumstances.
It’s generally considered that if you have anyone, especially dependants, who would be financially disadvantaged by your death – i.e. by having to sell your family home due to the inability to keep up mortgage repayments, or would be liable for the cost of bringing up your children, – life insurance should be a high priority for you.
How does Life Insurance work?
Life insurance is similar to other insurances you may have – you pay a premium to the provider who provides you with an agreed level of cover then, if you die whilst the plan is in force, the provider will pay the agreed sum assured to either the named beneficiaries of the plan or your estate.
The amount you pay for life insurance will depend on a number of factors including: how old you are when you set the policy up, how long you need the cover for, pre existing health conditions, your health at the time the policy is underwritten, whether or not you are a smoker and the level of cover you require.