Personal Protection
Life Insurance

Life Insurance

With life insurance available offered in banks and online, many people pick the cheapest policy and sit back happy in the belief that they are well covered. However, few may understand the different types of cover that are available which inevitably means a lot of folk end up under-protected or paying more than they should for their cover.

For instance did you know what with many life policies the insurer can put your price up year on year as you get older?  Or that instead of insuring a lump sum for your family and hoping it's enough it may be far cheaper to insure an income for your family in case something happens to you?

Read on to find out more about some of the different types of cover available and how each may or may not be right for you - the list is not exhaustive but is a good place to start. Just want a quote?  Click below!

Should I have a Reviewable or Guaranteed policy?

A reviewable policy is one where the provider reserves the right to change the premium or the sum assured periodically, sometimes every year and sometimes every five years.  A guaranteed policy on the other hand is one where the premium is guaranteed to remain the same year on year or to increase in a set manner or in line with inflation.

Wherever possible our policy is to recommend guaranteed policies.  This is firstly because they are normally expected to be cheaper over the long term even though they may be more expensive in the short term, and secondly because the premiums are therefore predictable, avoiding the risk that they may become unaffordable in the future, leaving a client uninsured.

On occasion it will not be possible for a client to take a guaranteed policy because one cannot be sourced for them due to their medical history or risks involved in their profession.  In this case it's vital that you take professional financial advice to ensure you end up with the most suitable policy.

  What's the difference between Reducing Term,
Level Term and Whole-of-Life?

If you are taking life insurance to settle a capital-repayment mortgage in the event of your death then normally we would advise a reducing-term life insurance policy.  This is a policy where the amount you are actually insured for will fall as the mortgage debt falls, the idea being that you're always covered for the balance of the mortgage without paying for more than you need... BUT there is a potential hazard here.  

Most decreasing term policies will only fall in line with the mortgage provided the mortgage interest rate doesn't rise above a certain percentage - if it does then you could find your policy is no longer enough to cover your mortgage.  When you look back at interest rates over 25-30 years (a normal mortgage term) and consider that many of these policies reduce at a maximum 8% rate, this suddenly doesn't seem all that unlikely!

Level-Term insurance is an insurance policy which will pay a set amount if you die before the policy ends - the amount of benefit does not drop over time.  This is normally only recommended to cover a mortgage if the mortgage is interest-only.  Sometimes we recommend level-term insurance if you want to ensure that a lump-sum is available to your family on your death to help them cope, make changes in their lifestyle or meet unexpected needs.  It's used wherever you know you'll need a lump sum which will not decrease, but you know you won't need the cover beyond a certain date.

Whole-of-Life insurance is a life insurance policy without an end date - the policy will continue forever until the time of your death.  This of course means that the insurer knows that one day they will have to pay out one day which in turn means that this type of policy is more expensive.  We'd normally only recommend this kind of insurance to cover a liability which you know (or are fairly certain) will never go away.  One such need may be inheritance tax - a whole-of-life policy may be taken to meet an inheritance tax bill when you die (see our inheritance tax section if you think this may apply to you).  We'd strongly recommend you seek professional financial advice before taking any life insurance policy.

What's the best way to make sure your family are cared for?

After making sure your debts would be settled if something happened to you, most of us will then want to make sure our families are looked after in our absence.  This is particularly important if you have dependent children or a non-working spouse as even without debts they will still need an income.  Many people will take an extra life insurance policy to ensure that the family gets a lump sum in the event of their death, but there is an alternative which may be both more suitable and cheaper to insure - a "family income benefit" policy.

A family income benefit policy pays an income once you're gone - t
ake the below example of a 30 year old new father. He wants to ensure that his family is looked after until his new son is 21 (when he assumes he will no longer be dependant).  He can take a life insurance policy which will pay a lump sum, or one which will pay an income linked to inflation.  His household outgoings are £2500 a month.

Level Term Life Insurance
Family Income Benefit
What will the policy
pay on death?
£626,465 Lump Sum £2500 per month income
until the end of the term
Will it provide £2500 per month, keeping up with inflation? Yes IF 2% interest is made and
IF inflation does not exceed 2%.
Otherwise the income will run out sooner.
Yes, guaranteed.
Monthly Cost
£25.66 £14.90
Real cost over the term assuming 2% inflation
£5,292.48 £3,754.80

  • A lump sum can be used for anything, not just to generate income.
  • Higher returns might generate higher income.
  • The lump sum may last beyond 21 years, particularly if the claim is late in the term
  • Doesn't depend on investment/Savings performance to generate income
  • Lower cost.
  • The income is guaranteed and will increase with inflation.

  • Higher Cost.
  • Income is dependant on returns.
  • Less flexible than a lump sum.
  • A claim late in the term will result in a lower total benefit received.

Click here for a Family Income Benefit policy comparison quote.

Next Steps

If you like to talk about this proposition, do feel free to contact us.

Telephone:   02920 009 479 

Or you can message us from this website by clicking here.