What is Life Assurance?
Contemplating our own mortality is probably not the most pleasant way to spend an hour or so of our time. However, the reality is that life assurance could be the most important financial product you ever buy, so it does pay to give this potentially invaluable financial product some real consideration.
What is life assurance?
Life Assurance is an assurance policy that pays out a sum of money on the death of the insured individual. As with all assurance policies, you pay a premium based on the risk you present. In return for this monthly premium, you receive the peace of mind that, should you die during the term of the policy, the loved ones you leave behind will receive a lump sum to help to secure their financial future.
Most people will take out a policy like this to:
- Pay off large debts like a mortgage
- Provide financial protection for their family
What types are available?
There are two main types of life assurance policy, each providing slightly different cover.
- Term assurance – which pays out if the policy holder dies within a predetermined period of time, usually 10-25 years
- Whole-of-life assurance – which guarantees a payout whenever the policy holder dies
Whole-of-life assurance is an ongoing policy that you pay into until you die. This can represent a considerable investment over time, and given this longevity, it tends to be more expensive than a term policy. However, whole-of-life assurance guarantees a payout, so you know that the money you pay in will help to protect your loved ones at some point in the future.
Term assurance provides cover for a limited period of time, typically anything from 10 to 25 years. If you don’t die during the specified term he policy will not pay out and your premiums will not be refunded.
The different types of term assurance
There are two main types of term assurance for you to consider: level-term and decreasing-term assurance.
Like all term assurance policies, level-term life assurance pays out if you die within the specified term. The amount of cover you receive remains level throughout the term, so no matter when you die (as long as it’s within the predetermined term) the payout you receive will be the same. The premium you pay will also usually stay the same. This makes level-term life assurance well suited to leaving a significant lump sum to pay off an interest-only mortgage, or any other large financial liability.
In a decreasing-term policy, the amount of cover the policy provides decreases over time. As such, the premiums are usually significantly cheaper than level-term cover. This makes decreasing-term policies popular for covering repayment mortgages, where the liability decreases over time.
How much does it typically cost?
As with any assurance policy, the price of life assurance varies depending on the level of risk you present and type of cover you need. More specifically, there are a number of factors that affect the price you pay for life assurance, ranging from your age, health and lifestyle, to the length of the policy.
For example, if you are relatively young and have a clean bill of health, the premium you can expect to pay will be cheaper than that of an older, heavy drinker with a history of heart conditions.
Should you buy single or joint cover?
Couples should also take the time to consider whether joint cover, which is usually cheaper than two separate policies, would be preferable. Unlike two separate policies, joint cover pays out in full on the death of one of the policy holders, so you’d need to think about whether joint cover would be sufficient to provide the security your family needs.
Do you already have protection?
Before investing in life assurance, it’s important you take the time to look at your contract of employment to see whether ‘death in service’ benefits are included. This will provide a multiple of your salary in the event of your death, and may be enough to cover your family’s needs entirely, or allow you to reduce the amount of life assurance cover you need.
Help is at hand…
Evidently there are a host of different factors you need to consider before determining the type, duration and amount of life assurance cover you need. At The Mortgage Centres, our expert brokers are on hand to discuss your circumstances and help you find the best price on a policy that meets you and your family’s needs.