Life Insurance is about financially protecting for those who depend on you, so the first thing to consider is who has the most need to get insured? Insuring just one person (a single life policy) or both people (a joint life policy) is a decision affected by things like:
- Cost: Joint Life Insurance is going to be more expensive than cover for one person, but it will usually be cheaper than two single life policies.
- Circumstances: Would the impact of one death be greater than the other? Even two people in similar situations can have differing insurance needs.
- Medical conditions: One partner with a diagnosed condition can drive up the cost of a joint life policy significantly.
- Existing cover: Does one partner already have Life Insurance through work or with their mortgage? This could make Single Life Insurance a better option.
Decreasing Term Life Insurance
This insurance lasts for a pre-agreed term. Where it differs is that the amount of payout goes down each year. This is because it’s designed to cover one major expenditure, usually a mortgage which is paid off over time, so obviously you wouldn’t need the same payout towards the end of the mortgage as you would in the early years.
Because the amount paid decreases with time, premiums are usually cheaper than Term Life Insurance premiums. If your dependants would struggle to cover the mortgage if you died, but their other expenses are under control, this could be a good option.
Term Life Insurance
Term Life Insurance is a very straightforward setup. You set a term during which you’re covered, say 20 years for example, along with a sum insured. If you die during that term, the pre-agreed amount pays out.
This type of insurance is easy to get your head around. It can be set up to cover the costs of most common living arrangements, and premiums tend to be affordable for those with the most common need for Life Insurance. It typically covers fixed sums like the outstanding capital on an interest-only mortgage, or providing a cash sum upfront to financially support your loved ones.
Whole of Life Insurance
As the name suggests, this type of insurance covers you for the rest of your life, as long as you keep paying the premiums.
Premiums tend to be higher than other types, but over a long enough period they work out cheaper overall than having to re-assess and set up new policies as they expire when you are older each time. Savings options can also be built into this type of cover, making it a tax-efficient way to cover your funeral and plan your estate.
Family Income Benefit Insurance
The above two types of insurance pay out a lump sum if you die. This type pays out a steady income, which is triggered by your death. This can be agreed to cover the income of a household’s main worker and would pay out the same amount each month until the term of the policy expires.
If it’s the loss of your salary that would cause the greatest financial impact on your dependants, rather than any more permanent assets, this is a good choice of Life Insurance to keep them covered in the long run. Premiums tend to be very similar to Term Life Insurance.
This plan pays out a lump sum is you die during the policy term.
Joint policies only pay out on the first death and then stop. Two single policies mean a couple will each have their own independent cover. This means in the unfortunate event that either insured person dies, the cover for the remaining insured person continues.
Critical Illness benefit
Critical illness is designed to pay out a lump sum in the event you are diagnosed with a critical illness which is specified as covered by the insurer. Once a critical illness claim has paid out the policy will normally end.
Waiver of Premium
The waiver of premium benefit, if added to a plan, means that after 6 months of being declared unfit to work due to accident or sickness, the insurance company will waive the need for you to pay the premiums on your plan until you return to work, but your cover will still continue. The benefit will cease when the policy ends.
This means the cover will reduce each year, and is often taken with a repayment mortgage where the need for the cover reduces each year as the balance is repaid.