How to tell whole of life cover from term life insurance
With life insurance comes the reassurance of knowing your family will have financial support if you were to die. In this article, we explain what life cover is and look at some of the products available here in the UK, to help you understand which may be right for you.
How does life insurance work?
Life cover works very simply. If the person who is insured dies, the policy will pay out a set amount of money to the beneficiary – most often the partner or other member of the family.
This money can then be used to maintain household finances and pay outstanding debts like the mortgage, helping to lessen the impact of a loss of income or vital parental support.
Life insurance can be taken out individually or in joint names. However, a joint policy may only pay out when the first person dies, then cover will stop, so you may want to consider each partner having their own policy.
Types of life insurance in the UK
If you think it may be time you had life cover it’s worth familiarising yourself with the different types of policies available to find the one best suited to your personal circumstances.
Term insurance lasts for a set number of years and pays out if the person insured dies within this time.
Term insurance can be broken down further into:
- Level term insurance — The premium stays the same and the amount paid out also remains unchanged. People often take level term insurance if they have people that depend on them financially – like a partner or children
- Decreasing term insurance — Usually taken out to cover the outstanding amount on a repayment mortgage. The amount paid out when you die is relative to the balance of your mortgage. So, as the balance on your mortgage decreases, so does the amount the policy will pay out. Premiums stay the same throughout the term
- Family income benefit — Family income benefit pays out a regular, monthly cash sum to your family should the worst happen. This is to help cover the household bills and other payments until the end of the term
- Critical illness cover — Some insurance providers give you the option to add extras to your term life insurance policy. One of the most popular is critical illness cover, which pays out if you’re diagnosed with a serious medical condition, such as cancer, heart attack or stroke
Whole of life insurance
Unlike term insurance, whole of life insurance, provides cover for the rest of your life. As long as the premiums are kept up, a cash sum is guaranteed to be paid out to the policy’s beneficiaries when the time comes.