Life insurance covers the worst case scenario and has become more important as financial foundations have shifted, government resources have been strained and costs have climbed.
Being prepared for the unexpected will protect your family from any sudden and long-term financial hardship. It goes without saying that we need to enjoy our wealth today but at the same time ensure it remains there for us and our family tomorrow.
HAVING FINANCIAL PROTECTION IN PLACE MAKES SENSE
You’re not legally obliged to get life insurance for a mortgage, and lenders can’t make it a condition for letting you borrow money to buy a home. For the vast majority of homeowners, having financial protection in place makes sense.
If you own a property, a mortgage is likely to be the biggest debt you leave behind should the worst happen, so having a policy in place can help give you peace of mind.
Life insurance is certainly important to consider when buying a house as a couple. If you’re buying your home with your partner, your mortgage repayments would be calculated on the basis of two salaries.
If you or your partner died while your mortgage loan was still outstanding, would one of you alone be able to keep up the regular mortgage repayments?
You may like to read What happens to a mortgage when someone dies? for a more in-depth explanation.
MOST BASIC TYPE OF LIFE INSURANCE
With a term life insurance policy, you choose the amount you want to be insured for and the period for which you want cover. This is the most basic type of life insurance. If you die within the term, the policy pays out to your beneficiaries.
If you don’t die during the term, the policy doesn’t pay out and any premiums you’ve paid are not returned to you.
There are two main types of term life insurance to consider:
- level-term
- decreasing term life insurance
Level-term life insurance policies
A level-term policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains level throughout the term – hence the name.
The monthly or annual premiums you pay usually stay the same, too. Level-term policies can be a good option for family protection, where you want to leave a lump sum that your family can invest to live on after you’ve gone. It can also be a good option if you need a specified amount of cover for a certain length of time, for example, to cover an interest only mortgage that’s not covered by an endowment policy.
Decreasing-term life insurance policies
With a decreasing term policy, the amount you’re covered for decreases over the term of the policy. These policies are often used to cover a debt that reduces over time, such as a repayment mortgage.
Premiums are usually slightly cheaper than for level-term cover as the amount insured reduces as time goes on. Decreasing-term insurance policies can also be used for Inheritance Tax planning purposes.
Family Income Benefit policies
Family income benefit (FIB) life assurance is a type of decreasing-term policy. Instead of a lump sum, though, it pays out a regular income to your beneficiaries until the policy’s expiry date if you die.
With this policy you can arrange for the same amount as your take-home income to be paid out to your family if you die.
