Life Insurance to Protect your Loved Ones

Having a life insurance policy is a way to ensure your loved ones would not suffer financially if you die.

If you are the main breadwinner, a life insurance policy can pay off the mortgage on your house, for example, or provide an income for your partner or children.

If anyone is financially dependent on you, you should consider taking out an insurance policy and there are several types available. Although commonly known as life insurance, you cannot insure a life, so the proper term is actually ‘life assurance’.

Common reasons for taking out a policy include covering mortgage payments, replacing a salary, paying for childcare or covering education costs such as school or university fees.

Policies generally pay out a lump sum on death and some will pay out on the diagnosis of a terminal illness. If the policy expires and the policyholder is still alive, no payment is made.

Policies may not pay out if you don’t disclose certain information on the application form or if you commit suicide. Some also exclude certain deaths such as drug-related deaths.

A ‘whole of life’ policy covers you for the rest of your life regardless of whether your health deteriorates. Your premiums may go up as you get older. With term assurance, the policy lasts for a specified number of years and you may not be able to renew it when it expires if your health gets worse. You can sometimes pay extra to have a renewable policy.

Term insurance pays out if the policyholder dies during the term of the policy. The amount is guaranteed and doesn’t change during the term of the policy.

Decreasing term insurance (or mortgage protection cover) is used to protect mortgage payments and the sum decreases during the policy as the mortgage is paid off.

Endowment life insurance is like a savings scheme with life assurance attached. This will pay out any returns at the end of the policy or a lump sum when the policyholder dies.

Family income benefit policies pay out a regular lump sum to your family after your death, rather than a lump sum.

You can also get additional benefits on policies including cover for critical illness (so the insurance pays out if you are injured and unable to work).

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