It’s one of life’s annoying details, and many people never get round to dealing with it until it’s too late. It’s an extra monthly cost, with no immediate benefit, and besides, the subject is just too morbid for many to confront, particularly if they are young with little concept of their own mortality. But if you’re the main breadwinner in your household, a life insurance policy is essential to ensuring the future security of your dependents.
Taking out life insurance may also seem like too complex and daunting a prospect for people with no grasp on the lexicon. To help you through, here’s an elementary guide to insurance terminology…
Level Term Life Insurance
‘Level term’ means that the same amount of money is paid out to your family when you die, irrespective of how far through the policy your death occurs. The value of a level term policy is usually equivalent to your mortgage. Perfect for people who have other financial obligations – such as credit card debt – a level term payout will clear the mortgage and leave extra cash over for other expenses your family may have.
Decreasing Term Life Insurance
If you are covered by a ‘Decreasing term’ policy, then the sum paid out will decrease over time (usually proportional to your mortgage). If you don’t have much cash at your disposal, this may be the option for your, as the premiums are generally cheaper. Visit Legal & General to find out more about cheap life insurance. However, be aware of the pitfalls of Decreasing term insurance – if you have other debts to pay off apart from your house, your policy will not cover them.
Increasing Cover
‘Increasing term’ goes the opposite way to Decreasing term – paying out more money as time elapses. This mitigates for inflation, and the higher standard of living that your family may have grown used to over time.
Joint Cover
With a joint life insurance policy, both spouses are covered for the same amount, regardless of who dies first.
Critical Illness Cover
This is a really sensible option if you can afford it, as it recognizes that death is not the only financial catastrophe that can befall a family. Critical illness cover pays out in the event of incapacity through illness. If you have to take time off work, your family will be covered financially for the same amount you are earning (or close to it). This type of cover can usually be added to a standard life insurance policy.
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