Term Life Insurance Guide
Do I need Life Insurance?
If you have anyone financially dependent on you, and want to protect them in the event of your death, you should consider life insurance.
How does it work?
It can be used to pay off a mortgage and debts as well as provide a tax free lump sum or income to your family in the event of your premature death.
Hints and tips
What to consider when taking out Term Life Insurance
Work out how much cover you need
It may sound obvious but it’s important to insure yourself for an adequate amount, without being over insured. It’s also worth looking at insuring separate needs with separate cover.
A good place to start is to add up all your existing mortgage and debt and select a lump sum for a term length equal to the number of years you are liable for that. If you have a family, work out your total committed monthly outgoings, multiply that by 12 for an annual total and then multiply that by the number of years that your loved ones will be financially dependent on you. An alternative to this lump sum payout is explained next.
Replacing a the income from a ‘bread-winner’
Some insurance providers have developed a type of policy which will pay a tax free income to your family in the event of your death, known as Family Income Benefit (FIB). This works out cheaper than the lump sum type policy as the total potential payout decreases over the term. (Example)
Policy Term Types – There are 3 types of term available:
- Decreasing Term Assurance (DTA)– Designed to pay off a repayment mortgage as the sum assured reduces in line with the mortgage balance. The monthly premium remains level but is cheaper than an equivalent amount of Level Term Assurance
- Level Term Assurance (LTA) – The amount you are insured for or ‘sum assured’ remains level throughout the term. The monthly premium also remains level throughout the policy term
- Increasing Term Assurance (ITA) – The sum assured increases each year either at a specific percentage rate chosen from outset or by RPI. The monthly premium also increases at policy anniversary
Think about protecting more than just your mortgage
Protecting just your mortgage balance may be inadequate. Would your surviving dependants need to sell the family house in the event of your death even with the mortgage paid off? Work out your committed monthly outgoings with and without your mortgage repayment. With this removed, could your family afford to make ends meet? If not, consider insurance cover to protect your family’s financial needs.
A helping hand
As specialist term life insurance specialists, we can guide you through the options and decode the jargon. Why not put us to the test by speaking with one of our experts for a free, no obligation consultation.