What types of life insurance are available?
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I have decided to take out some life insurance to make sure my family will be secure if anything were to happen to me – I’m a single parent. I’m a little confused about the different types of insurance that seem to be on offer. Can you help, please?
Phil Beck of Smith & Pinching responds:
Life insurance is a fundamental building block of most people’s financial planning: it provides the reassurance that families will be OK if the worst should happen. There are two principal types of life insurance you can buy: whole of life and fixed term.
Whole of life insurance covers you for your entire life and will provide a lump sum payment to your chosen beneficiaries when you die, whenever that happens. It’s sometimes known as life assurance, as it’s not a “just in case” insurance, but is in fact a certain payment, as long as the necessary premiums have been paid.
Fixed term insurance provides cover for a period specified in the policy and will only pay out if you were to die during that specified time. If you die after cover has ended, your beneficiaries will get nothing. Again, beneficiaries must be specified by you and you must have paid the required premiums.
The type of life insurance that is best for you will depend on your circumstances. You may wish to cover a debt such as a mortgage for its outstanding term until completion or to protect your family if something were to happen to you, so in these instances a fixed term policy may be the right solution. On the other hand, you may want to provide a payment for whenever you die to ease your beneficiary’s life after your death or, perhaps, to pay for a funeral, or cover potential Inheritance Tax liabilities.
Life insurance can be set up on a single life or on joint lives, where applicable but, as a single parent, you are probably looking at a single life policy.
Fixed term and whole of life policies both provide a single cash lump sum to your beneficiaries on your death. You can also get another type of cover to run either alongside or instead of a standard policy which will provide an income for your beneficiaries. This is known as Family Income Benefit and delivers an income for a specified period of time after your death. It’s a relatively cost-effective way of enhancing protection for your family and may also be of benefit to you.
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I suggest you talk your circumstances through with an independent financial planner, who will help you find a policy that is suitable for you.
Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk