A Brief Guide to Life Insurance

Taking out life insurance is a way of ensuring that should you die unexpectedly, your dependents will be looked after financially. Before buying a policy you need to work out exactly how much your family would need if the worst happened, and this would be your ‘sum assured’. That sum, together with your sex, age and your general state of health would be used to fix the amount of your ‘premium’ – how much you would pay each month to be insured.

There are two basic types of UK life insurance and the amount you pay would also vary depending upon the type you choose; term insurance or whole-of-life insurance. The cheapest and simplest form of life cover is term assurance. This is most often taken out at the time of your biggest financial commitment, for instance when you buy a house, and is for a fixed period of time. The purpose of the assurance is to ensure that should you die your mortgage is paid off leaving those left behind with no worries about housing. Once the policy expires it has no value, and you don’t get any of your payments returned. There are different types of term assurance, most commonly level term or decreasing term, but there are others that may be more suitable to your needs.

The other main type of insurance is whole-of-life and, as its name suggests will be in place for your entire life and guarantees a payout on your death. Because, with this policy a payout is guaranteed, premiums will be much higher than for life assurance. There are different types of whole-of-life policy; some are investment-linked and others offer a set sum from the outset. Investment-linked policies tend to be popular and payouts will depend upon performance of the investment. But, with this type of insurance your policies tend to be reviewed every ten years, and premiums can go up or the company could choose to decrease the cover it offers.

If you are considering taking out life insurance it is best to get independent financial advice first. Your advisor will guide you, helping you to accurately compare life insurance policies, ensuring that you end up with the best one for you. Their knowledge of the UK life insurance market will be invaluable in your search for the right product, and the advisor will be able to fully explain everything that has been covered in only the briefest terms here.