What different types of life insurance are there?
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I have begun to think about what life insurance I need to provide for my family if I should die unexpectedly. My mortgage has life insurance with it, but I want to get more insurance in place so my wife and children are secure. I am a little confused by the different types and terms involved in life insurance. Can you help clarify these, please?
Jeremy Woodruff of Smith & Pinching responds:
Life insurance is a fundamental first step to keep your family secure. You can get three basic types of life insurance: whole of life, fixed term and family income benefit. Cover for all types is dependent on you paying the required premiums.
Whole of life insurance will pay out whenever you die. Premiums will usually continue until your death, although some policies may have an end date for premiums, such as age 90, and still continue the cover beyond that. Whole of life insurance is generally more expensive than fixed term as the pay-out will definitely happen at some stage.
A whole of life policy can help families to meet Inheritance Tax (IHT) liabilities by providing a lump sum to settle the IHT bill. IHT must be paid before probate so the insurance would enable families to pay it before the estate has been distributed.
Fixed-term insurance will pay a lump sum if you die within the agreed term of the insurance. You can set the period of the insurance to when you have the most vulnerability, such as when your children are still at home, or your working years prior to retirement. Premiums will be dependent on the length of the term of the insurance, your health and lifestyle and the amount of cover that you require. Premiums can be set to increase over the term of the policy to enable the cover to keep pace with inflation. Alternatively, they can decrease over the term if your need for cover will abate over time. A third option is to have level premiums that remain the same throughout.
Family income benefit provides an income for your family in the event of your death. Cover would be agreed for a set period at the outset: if you were to die, income would be provided for the remaining years of the policy.
Most life insurance policies can be set up to cover either single or joint lives, so you could cover both yourself and your wife. Premiums for a joint policy can be cheaper than two single life policies but cover may end when the first partner dies, depending on how the policy is set up. The surviving partner would then need to start a new policy if required.
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This is a marketing communication: any opinions expressed in this article do not constitute advice.
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