Life Insurance policies pay out if the policyholder dies or gets diagnosed with a terminal illness with less than 12 months to live. You can get a single policy for one person or, if you have a partner or spouse, it may be more cost-effective to take out a joint policy that pays out if either person dies or is diagnosed with a terminal illness. The money is usually given to the surviving family members as a lump sum and is often used to pay off the mortgage, other debts, and to help cover living expenses. Life Insurance offers financial security to your family. Without it, if a working parent was to die, your loved ones may lose their family home and struggle to get by. Any savings could also be depleted, which could negatively affect your family’s lifestyle in the future.
There are different types of Life Insurance and it’s important to find the right policy and level of cover for your situation. As mortgage brokers, it’s our duty to ensure our customers are given the right advice so they can protect their mortgage and home. We provide a free insurance advisory service to help you find and apply for the right policy, and you can book your FREE insurance consultation here.In this guide, we’ll discuss the different types of Life Insurance, how much cover you should take out, and the benefits to taking out your policy in Trust.
Types of Life Insurance
There are two categories of Life Insurance policies, each offering slightly different payout structures. Which one you choose depends on your situation and needs, and we can help you decide during your FREE insurance consultation.
Level Term Assurance
This type of Life Insurance pays a fixed lump sum no matter when a claim is made. In other words, the amount of cover remains the same throughout the term as do the premiums. As the overall cover is higher, these policies tend to have higher premiums than Decreasing Term Assurance policies. This could be right for you if you have an interest-only mortgage or if you want your family to receive the same amount of money no matter how long into the policy a claim is made.
Decreasing Term Assurance
The payout for this type of Life Insurance decreases as you go through the term – designed to mirror your decreasing mortgage balance. The idea is, as your mortgage balance decreases, your family will need a smaller lump sum to pay it off. The premiums are still fixed, but as the cover decreases overtime, they tend to be lower than with Level Term Assurance policies. This could be right for you if you have a repayment mortgage and your main goal is to protect your family home at a lower cost.
How Much Life Insurance Cover Do I Need?
Most people aim to take out enough cover to pay off any remaining mortgage and debts, and to protect their family’s current quality of life. That being said, how much life insurance you take out is a personal choice and there is no one-size-fits-all answer. Some experts suggest 10x your salary as a starting point, but our advisors can help you work out a more accurate figure for your specific situation. Some of the things we’ll look at are:
• What type of mortgage you have
• How much you have left on your mortgage balance
• How much other debts you have
• How many dependants you have
• How old your dependants are
• Your family’s approximate monthly living costs
• Your savings, investments and benefits
Will ‘Bereavement Support Payment’ Be Enough to Support My Family?
Your family may be able to claim a state benefit known as Bereavement Support Payment (BSP) if you or your spouse or civil partner dies. However, as of May 2022, this benefit consists of a £2500-£3500 lump sum and a £100 – £350 monthly payment* (depending on whether you have children or not). As you can see, these payments, although useful, do not compare to receiving a £200,000 – £300,000 lump sum from a Life Insurance payout. Bereavement Support Payment can help to put food on the table, but it may not be able to protect your family’s home and quality of life.
Should I Take Out Life Insurance in Trust?
If you get Life Insurance without a Trust, the money will fall into the deceased’s estate, which can delay the payout and in some cases trigger inheritance tax liabilities. Setting up your policy in Trust ensures you receive the money sooner and your payout will be shielded from inheritance tax. For these reasons, we recommend using a Trust when taking out Life Insurance and we can set this up for you free of charge.
The Bottom Line
We believe taking out Life Insurance is very important if you have a partner or children who depend on your income. But what type of policy and how much cover you should buy depends on your specific situation. For example, if you have an interest-only mortgage, you may want to consider a Level Term Assurance policy, whereas if you have a repayment mortgage, a Decreasing Term Assurance policy may be a more affordable option. This is just one factor that can help determine the type of Life Insurance you take out, but it’s important you speak with a professional insurance advisor to figure out exactly what you need and what policies are available to you.
At Michael Usher Mortgage Services, we’ve been helping people with insurance for over 30 years. We have a dedicated insurance and protection team who can help you FREE OF CHARGE. That’s right, our friendly experts will find the right policy for you and set it up for you for free. We understand the potentially devastating consequences of not having Life Insurance, which is why we do all we can to protect our customers and their families.
Book your FREE insurance consultation with one of our advisors to get going quickly. We have offices in Frimley and Basingstoke, or we can help you remotely via phone or video call if you would prefer. We look forward to chatting with you!
Book your FREE insurance consultation here
Think carefully before securing any other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage.
Sources:
*https://www.gov.uk/bereavement-support-payment/what-youll-get
