Understand what types of life insurance are available

Life insurance is widely considered one of the wisest investments you can make, yet it’s one that many still overlook. According to Home Office statistics, 49% of adults have a life policy, which means that more than half have no cover at all.

Life coverage provides financial protection for your family and loved ones if you are suddenly no longer around to support them.

Once you’ve decided that you need a policy, you need to find out what type of coverage is best for you.

There is a wide variety of options available, which will suit all budgets and requirements. Circumstances to consider include: do you have a family, do you have a mortgage, how much money would your family need to maintain their standard of living, and how long do you need protection?

There are two main types of life insurance: term life insurance and whole life coverage. There has been a significant movement towards term life insurance in the last 10 years for a number of good reasons; not least the fact that term insurance is a fraction of the cost.

Term life insurance will provide financial protection for several years, say 25 years if foreclosed with a mortgage, while whole life coverage will extend for the rest of your life.

For this reason, term life insurance will only pay if the policyholder dies during the term. Whole life coverage is different; not only because it stays for life, but because it also has a cash income, so it is considered an investment and just insurance. These policies have been criticized in the UK press for their poor returns compared to alternative investments and experts have recommended buying term insurance instead and then putting the excess funds into more efficient investment vehicles.

After you have chosen term life insurance or whole life insurance, there are other options.

The first is the type of coverage you require; Level coverage is the most common type of term insurance because it’s simple and provides the peace of mind that comes from knowing that your family will be covered if the worst happens. This coverage pays a fixed cash payment if the policyholder dies at any time during the insurance plan.

Declining coverage is often referred to as mortgage protection insurance. It works the same way as level term coverage, but the amount you pay is reduced over the life of the policy. As a result, it can be designed to decrease in accordance with a mortgage payment and is often recommended by mortgage brokers and banks. Remember that if you want to protect your interest-only mortgage, then you should buy level term life insurance.

There are a number of extras that can be attached to an insurance policy to provide additional protection and to suit your particular circumstances. Critical illness coverage is a common addition and provides financial protection if the policyholder is diagnosed with a specific critical illness. This would provide a lump sum payment that would be invaluable if you were no longer able to work or had to adjust to new circumstances.

We hope this helps you understand the different options available. If you speak to an IFA or insurance adviser, they will be able to suggest the right protection for your individual circumstances. If you just want simple protection, then term life insurance is a great place to start, and according to recent reports, it’s the cheapest for over ten years.