Date Published: 15/06/2020 15:04
Buying life insurance can be very confusing. Jillian Thomas takes a look, starting with whether you should consider a whole life or term policy.
Life insurance is one of those topics that we don’t really want to think about. But whatever is happening in the world, the old saying: ‘nothing is certain in life but death and taxes’ is still true.
And if you have loved ones and dependents, you do need to think about what happens to them when you die. But life insurance is confusing. So let’s look at some basics.
There are two main types, whole of life and term .Whole of life lasts as long as you. Term lasts for a limited term, 25 years for example. Term policies are often cheaper for younger clients.
There are also products such as mortgage life insurance, which may cover only your outstanding mortgage. Depending on your circumstances that might be suitable, or you might want to have a policy that includes more if you want to leave a nest egg to loved ones.
Term insurance will pay out the biggest death benefit for the lowest premium when the policy is first issued. But it might not work out the cheapest over a longer period. Term insurance premiums increase at each renewal; so the older you get the more they cost. So in the long run, a whole life policy might work out much cheaper. But if you think you only need life insurance for a shorter time, say less than ten years, then term insurance might be cheaper.
There is also the increasing term insurance policy and the decreasing term insurance policy. With the increasing version, the size of pay-out increases as the term of your policy continues. So the older you are when you die the more it will pay out. For example, a fixed term policy worth £100,000 initially, with a three per cent annual increase will be worth £130,477 ten years on.
With a decreasing term policy, the pay out will decrease as you get older. This might be suitable for you if you have the policy to cover debts like paying off a mortgage on your death, as the amount owed will fall over time. The advantage of a decreasing term policy is that the premiums will also fall over time. This is often the cheapest form of term insurance.
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