Life Insurance Specialists

Not everyone needs life insurance, but if your children, partner or other relatives depend on your income to cover their cost of living expenses you may want to consider taking out an appropriate policy. Life insurance is essentially designed to provide you with reassurance that your loved ones will be looked after when you die and the amount of money paid out depends on the level of cover you buy. You can also decide how it is paid out and whether it will cover specific payments such as mortgage or rent.

Getting the right life insurance policy can be tricky as you need to work out how much money is needed to protect your dependents including living costs and any outstanding debts such as a mortgage. Below, you’ll find more information on the different types of policies available and how they work.

Types of Life Insurance

This policy lasts for a pre-agreed number of years and pays out a set amount in the event of your death. You can choose the length of the term (e.g 10 years) and the amount of cover (e.g £100,000) meaning if you were to die during any point during that period the full lump sum would be paid out. Premiums are usually paid on a monthly basis and are fixed throughout the term, the benefit is also paid out tax free. These are usually a cheaper option than whole of life policies as the term and benefit are known from the outset.

Advantages

- Affordable for most

- Easy to understand terms and premiums usually stay the same

- Good for those with dependants and interest only mortgages

Disadvantages

- No cover once the agreed term has ended

- Payout doesn’t change over time so readjustments are usually necessary

 

 

Also known as mortgage life insurance, this policy is most commonly used to protect a capital/principal repayment mortgage loan where the amount of debt outstanding falls over time as repayments are made each month. As the amount that could be paid out decreases over time, this normally means the monthly premiums are significantly lower than other policies as the overall pay-out is lower. These premiums will stay the same throughout the term though, as it’s the balance paid out that decreases.

Advantages

- Monthly premiums are usually more affordable than other policies

- Good for those those on a tight budget but don’t want to sacrifice the security of a life insurance policy

- Useful if you are expecting your financial commitments to reduce over time

Disadvantages

- As time goes on, any claim made will be worth less

- Interest rates of any decreasing life insurance quote fall significantly faster than the outstanding mortgage debt

 

Another type of decreasing term policy, this pays out a regular income to your beneficiaries until the policy’s expiry date. For example, if your take home pay is £2500 a month you can arrange for the same amount to paid out to your family if you die. Once the cover ends, no more payments will be made so if you die in the early years of the policy, the total payout will be more than if you die nearer the end of the policy. You can also opt for a level income or pay more for an income that rises by a set amount each year.

Advantages

- Cheaper and easy way to provide for your family with an income rather than a lump sum if you die

- Simple way to work out how much cover you need

- Ideal if you just want cover until your children are grown up

Disadvantages

- If you die towards the end of the policy, your family will only receive payments for a short amount of time

- Not suitable for covering mortgages or other debts

 

In the event you fall seriously ill, critical illness insurance pays out a lump sum in the event of a diagnosis of certain conditions. It’s important to know exactly what kind of conditions you are covered for but a typical policy would protect you from strokes, heart attacks, transplants, blindness or permanent disability but this varies between different insurers. Most policies cover you for a fixed amount (e.g £100k) which is paid in a one-off, tax free payment although some will allow you to rearrange that into a monthly allowance if you make a successful claim. It’s also worth noting that in some cases you can add critical illness cover onto regular life insurance policies.

Advantages

- Peace of mind if you were to suddenly fall ill and were unable to provide for your family

- The money you receive can be used in whatever way you see fit

- Many policies are sold with guaranteed premiums

Disadvantages

- The more illnesses covered by the policy is usually reflected in higher premiums

- As of 2003, certain illnesses such as lymphoma are no longer covered in many policies

- Any pre-existing conditions in yourself or close family members could also affect premiums

 

As the name suggests, whole of life policies cover you however long you live paying out a tax-free lump to your loved ones in the event of your death. The premiums are often more expensive as a payout is inevitable but one of the main reasons people still choose whole-life cover is to help cut their family tax bill, particularly inheritance tax. When you die, IHT is charged at 40% on all your assets worth more than £325,000 including the family home. By taking out a whole of life insurance policy and writing it under trust, your beneficiaries should receive a tax-free lump sum that can pay the IHT bill.

Advantages

- Provides financial security for the life insured’s dependants in virtually all circumstances

- Can help mitigate any potential Inheritance Tax liability

- Cover can usually be increased during the policy term without any further underwriting

- Premiums are often guaranteed unless indexation has been chosen

Disadvantages

- Premiums are usually much higher as a payout is inevitable

- Certain policies are structured so you could be paying the premiums in your 70s and 80s so you need to plan accordingly

- The interest rate you earn on the cash value accumulation portion could be considerably less than if you invested it elsewhere

 

 

The majority of the above can be taken out as joint policies between partners and many of our clients come to us wondering if they should take this option. Joint life insurance policies are usually more affordable but it’s very important to remember that there is only one payout, usually on a “first death” basis meaning the survivor will be left uninsured.

Advantages

- Usually cheaper than taking out two separate policies

- Both policyholders can make a claim, so it’s not just one person who has to deal with all the communications

Disadvantages

- Surviving partner will be left without life insurance as joint cover pays out only once before ending

- In the event of separation it can be difficult to split the policy into two single ones

 

Choosing the right type and level of cover can be a tough decision, which is why so many people have chosen Mapps to help them make the right choice. With a wealth of experience and access to many different providers, we have established ourselves as one of the very best independent insurance brokers in County Durham.

Our advice is not only impartial, but also completely free of charge until the completion of your application. To arrange your free consultation or learn more about protection insurance, please feel free to contact us directly for more information.