First of our three-part series on different types of life insurance. Every Friday for the next five weeks we will cover, in-depth, various types of life insurance policies.
Are you confused about the variety of options surrounding life insurance? Relax; we are here to explain each aspect of life insurance in detail so that you can decide which type of life insurance policy is best for you.
Let’s kick this off, starting with term insurance.
This is possibly the most common type of life insurance policy that young adults take out. The policy runs for a specific time of an insured person’s life, usually 25 years in line with a mortgage term.
When we think about it, this is the time that many adults would be most vulnerable if their partner were to pass away. Specifically, the time in life, when a young couple gets married, buys a home and has children. If one partner unexpectedly dies, due to illness or an accident, the financial situation would be extremely worrying. Suddenly alone with children, an abrupt drop in income impacts on the following:
- monthly mortgage repayments
- regular household bills
- expensive child-care
- weekly shopping
Different life insurance policies can provide protection for loved ones
All of the things that we manage as a couple and take for granted suddenly become an enormous burden to bear financially.
Taking out term insurance policy provides comfort and peace of mind in such sad circumstances. Term life insurance certainly eases the financial burden for loved ones struggling with the loss of a partner or parent. At the very least, the mortgage is taken care of and, at most, a lump sum to help with the day to day living expenses. Thus allowing the surviving partner to continue to live without any financial hardship, ensuring the children are cared for until they are old enough to fend for themselves.
Due to the cost-effectiveness and practicalities of term insurance, it is by far a more conventional policy for many young couples. Moreover, it provides a level of flexibility and is customisable to fit particular circumstances or preferences.
We can break down term insurance into two categories:
Level term – The policy term is for a fixed time, and the monthly premiums are the same until the policy ends. Nothing changes; the cover and payout in the event of a claim remain fixed throughout the term of the policy. This type of life insurance policy is particularly advantageous for couples who have an interest-only mortgage and children. Providing extra cover, beyond the mortgage term, gives extra financial stability if one parent passes away.
Decreasing term – In line with a mortgage or other debt, the term and premium remains fixed. Still, the payout in the event of death reduces each month (usually in line with a repayment mortgage). Because this type of insurance only covers a repayment mortgage debit, the premiums are far cheaper. Therefore, it is very popular with professional couples with no children.
Life insurance protects the family home
There is no doubt that a mortgage is, by far, the most substantial debt most couples will incur. Protecting the family home undoubtedly the most critical factor for any couple with children. It is extremely wise, while couples are young, to consider insurance as a crucial financial investment.
With life insurance, whether it is a fixed term of decreasing term provides peace of mind, reduces any financial risks to surviving spouses and dependents. Taking out life insurance when you are young will impact significantly on premiums. Especially if you are young, do not smoke, are in good health and do not partake in risky activities.
Different life insurance to cover every eventuality
Like anything in life; car insurance, contents insurance, buildings insurance, then chances are nothing will happen to induce a claim. However, when something does happen, the relief that insurance brings far outweighs the costs of those premiums. Insurance is sound financial planning.
Tune in next Friday where we will look at the benefits and drawbacks of joint insurance policies.
In the meantime you can speak to one of our extremely friendly and helpful FSA regulated advisors, simply click and fill in the form.