Term life insurance
With a term life insurance policy, you choose how much you want to be insured for, over a certain period. If you die during this time, the policy will pay out to your beneficiaries. If you don't die during this time, the policy won’t pay out and what you've paid in won't be returned to you. This is something you'll need to think about when deciding what types of life insurance are suitable for you.
- Level term life insurance policies: A level-term policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains the same, and usually your monthly or annual fees will be the same, too.
- Decreasing term life insurance policies: The amount you're covered for with a decreasing-term policy goes down over time. These policies are often used to cover a debt that reduces over time, such as a repayment mortgage. This means your premiums will go down as the amount you're covered for decreases.
- Family income benefit policies: Family income benefit life insurance is a type of decreasing-term policy. Instead of a lump sum, though, it pays out a regular income to your beneficiaries until the policy's expiry date if you die.
This type of policy is designed to pay out a specified amount when you die, whenever that may be. Since it's certain you'll die one day, the policy will have to pay out no matter what, making it more expensive.
These kinds of life insurance policies are useful to cover an inheritance tax bill, should your estate incur such a bill when you die. However, to make sure you don't pay inheritance tax on this policy, it needs to be arranged with a specific trust. It's a complicated area and it's best to seek professional financial advice.
You'll also need to think about the different types of whole life insurance policies. For example, some will stick to the specified amount that's paid out when you die, but others can be linked to investments, and the amount paid out can vary depending on performance.
Premiums and the level protection offered with this type of life insurance are usually reviewed every 10 years. This is to determine how much protection the policy can still give you, and what premiums you need to pay. Some policies require you to pay premiums up until you die, and others only for a certain amount of time.
Maximum cover vs standard cover
Maximum cover offers a high initial level of cover for a lower premium. A small amount of this premium is used for investment. Once this is reviewed, however, you may have to increase your premiums to keep the same level of cover. This will depend on how well the small amount that's been invested has performed.
Standard cover, on the other hand, balances the level of life insurance with adequate investment to keep premiums consistent. Since the value of the policy depends on how the invested funds have performed, you could still need to increase your monthly payments to maintain the cover you want.
Critical illness cover
Any of us can become ill at any time, and while most of us like to think we'll manage, sadly that's not always the case. Critical illness cover is a type of policy that's designed to alleviate some of the financial hardships that can occur if you're unwell. Here are some of the benefits to this kind of life insurance.
- Surviving financial hardship: You might not be able to return to work straight away after your illness, or ever. This money could make things a little easier, paying for things like home modifications or even certain types of care you might need.
Much-needed financial support: If you're unable to work during or even after your illness, you might find yourself in financial hardship. This money could be used to help fund things like the mortgage or rent, everyday bills or even simple things like the weekly food shop. It can help you rest easily, so
- you can concentrate on getting better.
Which conditions are covered with critical illness cover?
Critical illness cover pays you a tax-free lump sum on the diagnosis of certain life-threatening or debilitating (but not necessarily fatal) conditions.
There are some exclusions and limitations to what illnesses are covered, which vary by insurers. More comprehensive policies will cover more serious conditions, so you need to think carefully about what you might need. What's more, if you already have critical illness cover and are diagnosed with a critical illness, it might be best to stick with the policy. This is because a new policy might not cover your condition and you could lose a lot of benefits.
It's important to note that policies will only pay out for conditions that are defined in the policy document, so make sure you read it carefully. Even if you're diagnosed with a critical illness, most policies won't pay out straight away. They will expect you to live for a certain amount of time, known as the survival period, before paying out. If you die before this, the policy won't pay out.
How is critical illness cover cost calculated?
How much your critical illness cover costs will depend on a number of things. These include:
- The type of policy you've chosen
- Your age
- The amount you want it to pay out
- Health-related factors, such as if you smoke
You also might go through some lifestyle changes that mean you need to make alterations to your policy, or take out a new one, which could also affect how much you pay. This could be if you get married, have children, or move home and your existing policy doesn't cover these things.
Other types of life insurance
- Over 50s life cover: As the name suggests, this type of policy is for those over 50. Often, it's to cover things like funeral costs, but also could provide some financial security for your loved ones, such as your grandchildren.
- Terminal illness cover: Terminal illness insurance will typically pay out a lump sum for any terminal illness from which you'll die within 12 months. This is different to critical illness insurance, where you'll only be paid if you're diagnosed with an illness listed in the policy document.
- Children’s cover: This policy pays out a lump sum should your child become seriously ill or die. It's usually designed to help with potential medical costs, or day-to-day expenses should you need to stop working or make changes to your home.
While it can be unsettling thinking about life after we’re gone, it’s always a good idea to think about how you can protect your loved ones. The experts at Oury Clark are here to help make the process much easier and guide you on the best type of life insurance policy for you.