Life insurance is often one of the most important insurance policies you will ever take out as it provides your family with financial stability, and you with peace of mind that your loved ones will be cared for when you are no longer around. Choosing the right life insurance policy for you and your family is often complicated, and there are various types of policies that can get confusing.
In order to properly protect your loved ones and provide them with the right kind of cover, it is important to understand the life insurance options available to you. Read on to find out how to choose a life insurance policy, and what you should be considering to pick the right policy for your situation.
Why do you need life insurance?
Before you begin looking into life insurance options, you should determine your reasons for needing cover. Your life insurance needs will be based on your personal situation and the people who depend on you. If you have no dependents or do not generate a significant amount of your family’s income, then the chances are you do not need any life insurance.
If your wages are vital for supporting your family and are needed to pay the bills and mortgage, then life insurance might be a good way to ensure all these financial obligations are covered should you no longer be around.
If you already have a life insurance policy you should review it regularly and amend it as and when your circumstances change. Things like an increase in your debts, a change in occupation, or a new child in the family should all be updated in your policy.
How long do you need life insurance for?
One of the first things you need to decide when choosing a life insurance policy is how long you need to be covered for. Once you know the length of the policy you need, then you can select which type of life insurance is going to work for you. You should think about if you need:
- Cover for your whole life: If you need life insurance that covers you until you die, then you will need to choose a whole of life policy instead of a term policy. Choosing cover for the rest of life can give you peace of mind and guarantee that no matter when you pass away, your loved ones will receive a payout.
- Cover for your debts: A very popular option for many is to choose a term life insurance policy that will provide cover for a set period of time in order to cover debts. A decreasing term life insurance policy is a good option if you want just to cover your mortgage, as the payout amount will reduce every month, in line with your mortgage repayments.
- Cover for when you are older: The older you get, the more expensive life insurance will become. This is because you may have developing medical issues and are getting closer to your life expectancy age. Some life insurance policies are designed specifically for older people, such as over 50s life insurance plans; however you should expect to pay higher premiums for such plans.
Think about the various debts and commitments your loved ones will have to pay for if you are no longer around. If you have a mortgage and want them to be able to keep your home, then choose a policy that means they can cover your mortgage debts.
How do you want your life insurance to pay out?
As well as having various term lengths, life insurance policies also offer various payout options. You can choose either:
- Regular income payments: This type of payout will give your family monthly payments after you pass away which they can use to cover monthly bills such as rent or a mortgage. This is often an option with term policies, and the income will usually only be paid during the length of the policy term.
- Lump sum payment: Instead of monthly payments you can choose for your family to receive one lump sum payout after you pass away. This is a common option and can give your family the money to pay of a mortgage in full or give them a pot of money to live off.
Knowing which choice is going to be best for your family really depends on when you pass away. If you choose monthly income and then pass away just a few months before the end of the policy, then your family will only receive the income for the remaining few months. However, if you have chosen a lump sum payout, they will receive the entire amount in one go, no matter how long is left on the policy term.
With the whole of life and over 50s policies your only option is to have a lump sum payment, but term life insurance policies will offer the choice of monthly payments or a lump sum.
