The biggest draw of life insurance is that you’re providing a financial safety net for your loved ones in the event that something happens to you. The last thing your family should be concerned with is money during a difficult time, so a plan to provide them with a tax-free lump sum during that time will go a long way.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
Since there is more than one kind of life insurance, how do you know which policy is right for you? Do you need coverage for just yourself? Do you want your policy to cover yourself and your spouse? There are many things to consider when deciding the right kind of policy for you.
How much you can afford, what your coverage needs are, if you have any work benefits, and your health will all contribute to the decision.
Previously, we took a deep dive into whole-of-life insurance, so let’s explore term life insurance.
What is term life insurance?
Term life insurance covers you for a fixed period of time (a “term”) and the payment is made all at once. This kind of insurance is beneficial for providing financial security for your dependents, but not only that, you get to choose the amount you want to be insured for and what term you want to be covered. It’s the most basic type of life insurance because the policy dictates that you must die within the term specified, so if you die outside of this window, your policy won’t pay out and your premiums won’t be returned to you.
Types of term life insurance
The two main types of term life insurance are ‘level-term’ and ‘decreasing-term’ life insurance.
Level-term
Very aptly named, a level-term life insurance policy pays out a lump sum if you die within the term and the amount you’re covered for remains level throughout. Your premiums will normally stay the same as well. These kinds of policies are good for leaving a lump sum to protect your family financially upon your passing.
Decreasing-term
With a decreasing-term policy, your coverage decreases over the term of your policy. Premiums tend to be cheaper with these kinds of policies as the amount you’re covered for decreases as time goes on. These kinds of policies are good for debts that reduce over time, such as a mortgage, and they can also be used for IHT planning purposes.
Family Income Benefit Policies
Family income benefit life assurance is a kind of decreasing term policy. However, instead of a lump sum, it pays out as regular income payments to your beneficiaries until the policy’s expiry date.
Increasing-term
As the name suggests, with these kinds of policies, your premiums and cover will increase during the term of the policy. Increasing-term insurance policies are a good way to fight back against inflation or to cover a debt that increases over time.
Dental & Medical Financial Services will be happy to help you incorporate your wealth protection plan into your overall financial strategy. To ensure you’re selecting the right protection for your family, get in touch with your trusted financial adviser.