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Life Insurance: the basics

Life insurance is one of those things that most people don’t want to think about, but, equally, it’s one of those things that you have to face.

Life is tough and, often, very unkind, and at least if the worse did happen, then you and your family would be covered. Now, of course, statistically, you’re likely to make it to a good, ripe old age. But, if death and taxes are the only certain things in life, you could arguably add another one, and that is that nothing is certain!

Life insurance is all about providing some financial support for a loved one, or family, should the income from the main bread winner be taken away.

So, in return for paying a premium once per year, or once per month, the life insurance will pay out in the event of your death.

And life insurance generally comes in two forms: level term assurance and secondly, decreasing term assurance.

Level term, in principle, means that you are covered for the same amount throughout the term of the policy, although there are a number of nuances and options. The word term refers to the length of the policy and they can last from one year up to say 40 years. They tend to stop when you reach 80 though.

Decreasing term does as it suggests; it decreases over the length of the policy and this is why it’s often used to protect a repayment mortgage, so while the mortgage debt is decreasing, so is the life insurance payment. Again, there is a multitude of options and clauses with such a policy. The term of a decreasing policy lasts between five and forty years, with, again, an end point of 80 years old.

Some polices offer terminal illness cover (which means the policy will still pay out) at no extra cost, whereas some regard that as a payable option. Same with critical illness cover (when you are struck down with an illness, or disability that means the policy will pay out) and eligibility for a payment waiver, should you not be able to work for say six months.

So, they are the main types of policy and the next question is, how much do I need?

That basically comes down to your circumstances. Do you want say a multiple of your salary for x number of years; a lump sum to repay the mortgage, or a loan. Make your calculations before you talk to the insurer though, as they’ll want an idea as to how much cover you’ll want, although they are more than happy to advise on the cover required for particular personal circumstances.

So, get some life insurance and just hope you’re wrong!