Life Insurance explained
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What is Term Life Insurance?
- Term Life Insurance cover is the most common Life Insurance cover.
If your main concern is protecting your family or other dependants, term life insurance is often the cheapest way to buy all the cover you need.
- Term insurance pays out if you die within a set period of time (the ‘term’). If you survive the term, it pays out nothing. You might set the term at, say, the number of years until your children are financially independent, or the number of years remaining on your mortgage. It is not an investment, however, it is a low cost form of life insurance.
What to check out when choosing Life Insurance
- Does the Life Insurance meet your needs?
- Can you get the amount of cover you need? There may be a maximum or minimum.
- What type of policy do you want? For example, family income benefit (a policy which pays out income rather than a lump sum), increasing policy (where cover and premium rise over the years), renewable policies (which let you extend the original term).
- Check for exclusions – in other words, when the policy won’t pay out. For example, most do not cover death due to alcohol or drug abuse. You might not be covered while taking part in risky sports. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.
What affects the cost of term Life Insurance?
- Typically, tables show the monthly premium for, say, £100,000 of cover for a man or woman of a given age for various terms (from, say, ten to 30 years). Find the best premiums for the example which most closely matches you. Smokers usually pay more than non-smokers. The premium may be higher if your health is poor, or you take part in risky activities.
- The premium may be higher or cover refused altogether if your lifestyle puts you at added risk of contracting HIV/AIDS.
- Premiums shown are usually fixed for the whole term. There are also contracts where premiums are reviewable, after a certain period, usually 5 years.
- You get tax relief on premiums if you take out life cover through a personal pension or a stakeholder pension. However the life insurance element will be taken as part of the maximum you can pay into your personal pension.There will be changes in 2006.
Questions to ask the Life Insurance provider
- How much must you pay?
- Do you pay monthly or yearly?
- Does cover stop immediately if you miss a payment or is there a period of grace?
- Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this?
Compare the market and get a life insurance quote now
