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How To Choose The Right Life Insurance Policy

29th March 2017

There comes a time in most people’s lives when you start to think about what would happen to those you love if you’re not around to care, protect and provide for them.

Maybe you’re reaching a milestone birthday, have new additions to the family or work in a particularly high risk industry. All of these are popular reasons for looking into life insurance.

If someone close to you would suffer financially if you died, then maybe it’s time to start thinking about taking out a life insurance policy.

Choosing the most suitable life insurance option can be somewhat daunting considering the number of policies there are currently available on the market. Therefore, we have summarised the different options available to you.

 

Level Term insurance

A level term life insurance policy pays out the sum insured in the event of death, within a specific period, normally around 20 years.

This is the most popular type of life insurance that basically pays out either a lump sum or a monthly income if you die within the term of the policy.

If you don’t die within the agreed term of the policy you won’t get anything back. This type of life insurance is most suited for people with dependents financially reliant on them and an interest only mortgage.


Decreasing-term insurance (also called mortgage life insurance)

This is similar to level term insurance with the difference being that the sum insured reduces at an agreed level each year over the term of the policy. This form of insurance is most suited to protecting loans that reduce in value each month through regular payments. An example of this would be a capital and interest mortgage loan.

 

Increasing-term insurance

This type of policy is the exact opposite of the aforementioned decreasing-term life insurance. With an increased-term insurance, the sum insured increases every year, maybe to reflect rising inflation.

An index-linked policy allows you to link your pay-out in line with an inflation measure, alternatively you can arrange for the cover to rise by a fixed percentage every year.

The premium may stay the same, or may not. But the cover will always be based on your health status at the time the policy was taken out.

 

Renewable term insurance

This policy gives cover for a fixed period of time, but may be extended when that period ends without requiring you to undergo more medical checks.

The premiums can increase based on your age at this time. Any health problems that occur since the time the original policy was taken out won’t be taken into account or reflected in the cost of the new policy.


Whole-of-life insurance/cover

Whole-of-life insurance policies do not have a fixed set of time. Instead they carry on if you continue to pay the premiums. This type of life insurance ensures there is always some kind of pay-out in the event of death and the cash-in value may be withdrawn before death.

This type of policy is something of an investment and can pay smaller amounts in the early stages. But they are ideal for those looking for a life insurance that guarantees you will be paid no matter when you pass away.

This type of life insurance is often used for passing on money after your death, and is popularly used to cover costs of a funeral or for inheritance tax planning.


Family income benefit insurance

Similar to level term and decreasing life insurance, except that it pays out regular income to the remaining term time instead of a lump sum.

For example, if the level of cover is the same as your current or future predicted salary, you can make sure that your family’s living standards won’t reduce in the event of your death.

This type of insurance is very affordable for most people and is an ideal choice for those whose dependents may suffer if the main/soul income provider passes away.

 

Joint life policy

A joint life policy covers two people, say a husband and wife, and pays out the sum insured, usually upon the death of the first person, after which the insurance policy is cancelled

To reduce the premiums you can stipulate that the policy pays out the sum assured only upon after the second death.

 

Death in service benefits

A lot of companies offer employees’ families a lump-sum payment if the employee dies whilst they are employed by the company.
This type of policy doesn’t mean the death has to happen whilst at work or in any way related to your job.

Members of the company’s pension scheme may be entitled to pension payments if they die ahead of their retirement.

Benefits like this are worth bearing in mind when considering what type of life insurance you need. Such death-in-service payments equate to three to four years’ salary and is unlikely to provide you and your family the cover required.

This type of cover will be cancelled when you leave the companies employment and should only be treated as an additional level of cover to support your independent life polices as described above.

 

Things to think about

A life insurance policy can make all the difference to your whole family.  Expenses that come after a death, accident or serious illness will add more stress to an already distressed family.

Think about the whole family when considering policies, not just the adults as everyone will be affected should the worst happen.

Make sure you check your policy for changes that may affect you or your family’s situation and review your policies regularly for relevance as work, life and family matters change often and can affect what you need from your life insurance.

No one likes to think about what would happen to those we care for the most should we be unable to be there for them, but it’ll be much easier to handle with the right policy.

IMC offer a wide range of life insurance services designed to give you peace of mind, knowing your family will be well looked after.

Contact IMC for furthering information and advice: http://www.imcfs.co.uk/contact-us

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