Many people take out life insurance to pay off their mortgage if they were to pass away. Often the cheapest form of cover is decreasing term insurance.
What is decreasing term insurance?
Decreasing term insurance is a type of life insurance which means the term of the insurance is what you have chosen. Most people choose the same term as their mortgage and the amount of cover decreases at the same rate of the mortgage amount. Some people choose the term to be until their retirement age or the age they feel their children will be financially independent. Life cover premiums are often quite cheap when over a shorter term because the chances of passing away are lower.
Life insurance policies can be for one person, or you can have a joint policy with your partner. Joint life insurance often pays out when the first person passes away but it is important to check the details on the policy you choose.
The younger you are when you take out the policy, the cheaper the monthly premiums will be as the cost is based on your current age and your health.
What other types of life cover are there?
You could consider Whole of Life cover. This is life insurance that is in place until the day you pass away, as long as you continue to pay the monthly premiums. Whole of Life cover is generally more expensive than life cover that covers a specific period. This is because Whole of Life cover is guaranteed to eventually pay out and therefore it offers additional financial security over a fixed term policy.
If you’re not sure which type of cover is best for you, you can book a no-obligation meeting online with a financial adviser or call us on 0117 973 0500. Meetings are typically one hour and can be at your home address, at one of our offices or on zoom.
What is the point of life insurance?
Having a form of life insurance in place gives you peace of mind knowing that your family could stay in their home mortgage-free if you were to pass away.
Do I need other forms of financial protection?
It is important to note that life insurance doesn’t give your family any other income or financial protection or cover. If you were the main breadwinner of the family, only having life cover in place and no other financial protection would mean that your partner may have to find work quickly in order to replace the income lost. It could also mean that childcare is needed which can be very expensive.
Have you considered the impact on your family if the main breadwinner were to get sick? Statutory sick pay is £99.35 per week*. Will this be enough for your family to pay your essential expenditure such as your mortgage, electricity, food, childcare etc? For the peace of mind of you and your family you could consider income protection or critical illness cover.
What is income protection?
Income protection insurance will provide you with an income if you were off work on long-term sickness. You can choose the amount of income you receive; lower amounts will make your monthly premiums cheaper. You should determine the cost of your essential bills and make sure that the amount of insurance provides at least enough for your essentials to provide you with peace of mind.
What is critical illness cover?
Critical illness is another type of cover. It provides less security than income protection, but the premiums are usually much cheaper. Critical illness cover can pay out a lump sum or monthly income if you were to suffer from what they have defined as a critical illness. This is generally cancer, a heart attack or stroke but the list differs by each provider. It is important that you are aware of what is covered in your policy as some people take out a policy and believe they are covered for different illnesses.
Find out what level of cover is best for you
It is important that you fully understand a protection policy before you take it out, so you know what is covered and what isn’t. It is also important to make sure that the cost of your cover is affordable throughout your life because if in the future you cannot afford it and stop paying then your cover will stop. Reinstating your cover when you are older and possibly in worse health will be more expensive.
A financial adviser at Four Wealth Management can guide you through your options and make sure the level of cover you choose is appropriate for you and your family. You can book a no-obligation meeting online with a financial adviser or call us on 0117 973 0500. Meetings are typically one hour and can be at your home address, at one of our offices or on zoom.
*Gov, UK, ‘2022’, ‘Statutory Sick Pay (SSP)’
