What are your life insurance options?

July 22, 2013 at 1:48 pm Leave a comment

Navigating your way through the different life insurance options can be something of a minefield. But getting the right type and level of life cover in place – and all at affordable life insurance rates – will be crucial to achieving long-term peace of mind


What are your life insurance options?

We all worry how our loved ones will manage should something happen to us, will they be able to pay the mortgage, how will they meet other financial commitments and the like, but finding the best solution to this problem can be tricky.  This is where life insurance comes in, a product which has been designed to pay out upon your death, ensuring your family have the money they need to get by.

But should you take out a policy that covers just your mortgage debt in the event of your death? Or should you take one that will provide your family with the kind of lump sum that will pay off your mortgage and leave plenty to spare?

The first step to finding the answer is to understand the various life insurance options.

Term insurance

Life insurance that offers protection-only is known as ‘term insurance’. This is the most straightforward variety of life insurance cover, although there are still several different kinds available. 

Term insurance is simply a time sensitive policy taken for a predetermined number of years (25 years is quite common) which will pay out if you die within this timeframe. There are a number of term life insurance options available, so get to grips with these first.

Decreasing term life insurance

With a decreasing term life insurance policy, the sum assured – the payout your loved ones would receive when you die – would stay roughly in line with the remaining value of your mortgage.  Put simply, as the amount you owe your mortgage lender decreases, so too would the amount paid out by the insurer (typically 25 years, but can be tailored to the length of your mortgage).

For example, if in year one, your outstanding mortgage is $200,000, this is the sum that would be paid out to your beneficiaries if you die. If, in year 24, the outstanding sum is $1,000, this is the sum that would be paid out if you die. Your monthly premiums however, remain the same.

Level term insurance

Level term life cover is when the sum assured remains fixed for the term. If this was £200,000 for example, this is the sum that will be paid out in year one or in year 24 of your mortgage. Level term cover will usually create a surplus of funds to your mortgage which is why the monthly premiums – that are fixed throughout the policy – are more expensive.

Whole of life insurance

Whole of life policies do just as the name suggests and stay in place for your entire lifetime, paying out on your death.  It’s usual for this type of policy to be linked to investments such as pensions or endowments. The premiums are more expensive than on level term life coverage  and – if the investment fund does not perform to target over the years – there is a risk that your premiums can increase.

Joint or single life insurance

You can choose to take your life insurance coverage as a single policy or joint life policy. Which one will depend on how important your salary is compared to that of your partner and vice-versa – and also how much cover you want in place.

Typically, joint life insurance pays out on the first death but ceases thereafter and the policy becomes invalid.  

However, depending on the circumstances, it can make sense to opt for two single life insurance plans for you and your partner. This will double the pay-out as both deaths will be covered, rather than just the first. The difference in life insurance premiums between taking out two separate policies rather than one joint policy can also be minimal.

Other life insurance bolt-on options

With any type of life cover, you can opt to add on extras to the policy.  One of the most important of these is critical illness insurance, which can otherwise be taken as a standalone policy. 

Critical illness cover pays out if you contract one of a list of conditions, ranging from a heart attack to Parkinson’s disease, so long as it is severe enough to meet the rather grim definitions stated within your policy’s terms and conditions. 

When critical illness is combined with life insurance, the payout will occur only once on whichever morbid event happens first – death or contracting a serious illness.

You can also choose to add a waiver premium onto your family life assurance policy. This will allow you to stop paying your family life insurance premiums if you were unable to work as a result of illness or injury.

Seeking advice

If you are unclear about which type of policy is right for you, call one of  ottawabroker.com’s advisers for free and independent advice on (800) 503-6140 #223. 



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