Life Insurance
A life insurance policy provides financial protection for your loved ones if you were to pass away unexpectedly. It offers peace of mind that, even in your absence, your dependents would receive a lump sum to help cover expenses and maintain their financial stability.
What is life insurance?
Life insurance acts as a financial safety net for your family or loved ones, providing them with financial support in the event of your death. There are different types of life insurance policy available and the type you that’s best for you will depend on your needs and circumstances.
How life insurance works
Life insurance is a policy that pays out a lump sum if you should you die during the term of the policy. The amount of money paid out depends on the level of cover you buy.
These payments are tax-free and you can decide how the money is used to help your dependents feel secure and supported, including to:
- Pay off your mortgage or cover rent payments.
- Help loved ones pay the household bills.
- Support your children through higher education.
- Or leave your family with an inheritance.
Whatever your situation and reasons for getting a life insurance policy, the Frankly team is here to help you make the right decision for you and your family.
Types of life insurance policies
There are three main types of life insurance policy you can choose from to protect and support your family if you’re no longer around.
Term life insurance
There are three types of term life insurance including level cover, decreasing cover and increasing cover. All three types only pay out if you pass away during the term of the policy.
Whole of life insurance
This type of policy pays out regardless of when you might pass away as long as you keep paying the premiums. You can also choose between balance cover and maximum cover.
Family Income Benefit
This policy pays out a regular tax-free income for a set amount of time if you were to die during the term.
Life insurance vs. mortgage life insurance
Both these types of policies are term life insurance policies. Life insurance is typically what we call ‘level cover’ and mortgage life insurance is typically decreasing cover.
Simply put, with level cover any payout to the policy will stay the same for the whole period of the policy. With decreasing cover, the amount paid out decreases over time. The distinction is important because there are pros and cons to each type of policy.
Both of these types of life insurance can be used for mortgage protection purposes, but that doesn’t tell the whole story.
Life insurance
Life insurance is usually a policy that provides level cover if you die during the length of the policy. In other words, the amount of cover stays the same until the policy ends. With a life insurance policy, your amount of cover will stay the same regardless of when a valid claim is made during the policy term.
How does it work?
- You choose your cover for a period of time, such as 15, 20 or 25 years.
- You will get the same payout from this policy regardless of when you die during the term.
- You can decide what the payout is used for, incuding mortgage payments, university fees or household bills.
Mortgage life insurance
Mortgage life insurance normally describes a type of life insurance where the cover decreases over the length of the policy. It’s designed to protect a mortgage that reduces over time, so it’s often used to protect a repayment mortgage. Decreasing life insurance policy is an example of this type of insurance.
How does it work?
- Your cover typically lasts for the same length of time as your mortgage term.
- The payout you receive from this policy will decrease over time, as your mortgage decreases over time.
- The payout is used to directly pay off your outstanding mortgage.
Find out which option is right for you
Choosing between life insurance and mortgage life insurance depends on your circumstances, financial goals, and the type of mortgage you have. If you’re unsure, speaking to an expert adviser can help you decide which option offers the best protection for your needs.
Whole of life insurance
Whole of life insurance guarantees a payout regardless of when you pass away. Because of this lifelong coverage, these policies tend to be more expensive than term policies.
There are also variations, such as balanced cover with comes with fixed premiums. The key point of whole of life policies is that they only pay out as long as you have continued to pay your premiums.
- Pros: Guaranteed payout, Lifelong coverage.
- Cons: Higher cost, Potential health assessments.
Family income benefit insurance
Family income benefit is a type of life insurance. It pays out a tax-free, regular income for a set period if you pass away during the policy term.
When you buy a family income benefit policy, you choose how long you want the cover to last. Many people choose a term that lines up with their children’s or dependants’ ages, so the cover lasts until the youngest child is no longer a financial dependent.
- If you die during the policy term, your family will receive a regular income for the rest of that time. For example, if you take out a 20-year policy and die after 12 years, the policy will pay your family an income for the remaining 8 years.
- This type of insurance can provide peace of mind, knowing your loved ones will still be able to cover monthly expenses if you're no longer around.
- If you’re worried about rising living costs reducing the value of the payout, you can choose to ‘index link’ the cover. This means the benefit will increase in line with inflation, keeping its value over time.
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