Understanding life insurance
First published on 19 of October 2017 • Updated 02 of March 2018
You can take out life insurance to help your loved ones cope financially after your death. The people you nominate will receive a lump sum to use as they wish. If you have a mortgage, it is compulsory to take out a life insurance policy that will pay it off if you die before doing so. This is just one of the many kinds of life insurance that are available.
You can choose between two main types of life insurance: term or whole-of-life.
What is a term life policy?
A term life policy covers you for a set period of time, so will only pay out if you die before a certain age. For example, you may want the cover to last until your children reach adulthood, so are less likely to be dependent on you.
There are various types of term life policies out there, so it’s worth reading up on them before choosing which one to take out.
What is a whole-of-life policy?
Whole-of-life policies pay on your death, whenever that may be. As this means a definite pay-out at some point, premiums will be higher than for a term life policy, and you will need to keep paying them until your death. An additional use of a whole-of-life policy may be to pay out into a trust in order to cover an inheritance tax bill.
There is a huge range of life insurance policies available, so it’s important to find the one that is best suited to your circumstances and requirements. A financial adviser can search the whole of the market to find the insurance that is right for you.