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What is life insurance?

Life insurance provides coverage that pays out a lump sum if you pass away during the policy term. Its purpose is to offer financial support for your loved ones after you’re gone, whether that involves helping pay off the mortgage or maintaining a certain standard of living. You can take out life cover individually or jointly if you are applying for a mortgage with someone else. There are two distinct types of term life insurance: level cover and decreasing cover. The choice between them affects how your coverage amount may change over the policy term, consequently influencing the cost of the coverage. These options are designed to cater to individuals with different financial needs.

For instance, if your goal is to settle a mortgage in the event of your death during the policy term, you might choose decreasing cover. This type of life insurance decreases in value over the term, while the premiums remain constant. This aligns with the typical decrease in a mortgage over time. On the other hand, level cover is tailored for those with an Interest Only mortgage, as the coverage remains consistent throughout the mortgage term. This type of life insurance is also referred to as mortgage protection insurance.

How much does life cover cost?

There are several factors that can influence the monthly cost of your life cover. Below are some of the factors providers will consider when calculating the cost of your policy:

  • Age: Generally, the older you are, the more expensive a policy will be. This is because age brings an increased risk of developing a medical condition that may affect your life expectancy.
  • Lifestyle: Leading an unhealthy lifestyle can increase premiums. For example, excessive alcohol consumption or being overweight can shorten life expectancy, resulting in higher premiums.
  • Health: Having a pre-existing medical condition can affect the price you pay. More serious and chronic medical conditions usually mean higher premiums.
  • Family Medical History: Insurers may inquire about your parents' or siblings' history of serious medical conditions. For some individuals, this may impact the price, as there is a greater risk of suffering from the same condition.
  • Occupation: If you have a hazardous job, it's possible that you will have to pay more than someone in a lower-risk profession, such as an office administrator.
  • Smoker Status: Smokers can expect to pay more for life insurance cover than non-smokers due to the health risks associated with smoking. This includes all nicotine replacement products, including vaping.
  • Length of Cover: Life insurance policies with longer terms can be more expensive than policies with a shorter term.
  • Amount of Cover: You decide how much you would like to be covered for; generally, the higher this is, the higher the premiums will be.

It’s important to answer any questions your insurer asks you accurately and honestly when applying. Failing to do so could have a devastating impact on your loved ones, as it may affect whether your insurer is able to pay out a claim on the policy in full.

Do I need life cover?

Any type of protection related to your mortgage is optional and not a condition of taking the mortgage. Whether you need life insurance depends on your personal circumstances. Consider whether there are any people who depend on you financially, such as a partner or children. If so, life insurance is a way you can help provide them with a financial safety net if you’re no longer around to support them. Payouts from life insurance can be used to help pay off mortgages, cover the costs of raising children, and handle monthly bills. If you haven’t made any provisions for your loved ones in case you were to pass away, you might want to consider life insurance.

What is Critical Illness Cover?

It’s an insurance policy that helps protect your income if you’re diagnosed with a critical illness. During times when you're unable to work, tax-free cash can offer one less worry and maybe even a better night’s sleep.

While no one can foresee their future health, you can take financial precautions. It's like having a fire extinguisher in your house. You may never have to use it, but you’ll be glad it’s there if you need it. Consider the expenses you would face if critically ill and unable to work. From feeding your family to managing your bills, making ends meet without your normal income can be the toughest nut to crack. That’s why critical illness cover comes in handy.

Level cover.

With level cover, you choose the coverage amount and the duration for which you want the cover. The coverage amount and the monthly premium remain constant until your policy ends.

Level cover could be a good option if you're looking to help maintain a loved one's living standards, and the lump sum can assist in covering expenses such as:

  • Your salary
  • Any additional health and living costs
  • Rent payments
  • Continuing mortgage payments
  • Children’s school fees or other childcare costs

Decreasing cover.

This could be a great option to help pay off a mortgage, debt, or other loans if you're diagnosed with one of the defined illnesses while the policy is active. Just like level cover, it has an expiry date, and your monthly payments are set in stone unless you change your policy.

In general, decreasing cover is lighter on your wallet than level cover, as it's only intended to pay off loans and debts you’re chipping away at. The payout amount won't need to be as high if you claim, as you'll owe less money over time.

Protecting your cover from inflation.

You can choose to make your cover amount increase in line with inflation. This means that your monthly payments may rise but ensures the lump sum won’t be worth less in the future because of the rise in the cost of living.

What is income protection insurance?

Income protection is a type of insurance that replaces some of your income if you're unable to work due to illness or injury. Its regular payouts can help you stay afloat during turbulent times, allowing you to focus on getting better and back to work.

This could help you pay essential bills like your mortgage, rent, and other expenses such as utilities and food, enabling you to concentrate on your recovery.

Income Protection Insurance covers most illnesses and injuries that prevent you from working, either in the short or long term. However, it doesn’t pay out if you’re made redundant. Here’s how policies usually work:

  • It replaces part of your income if you experience a loss of earnings due to illness or injury, rendering you unable to work.
  • Income protection covers you until you have recovered or until retirement, death, your policy ends, or until the limited claim period on your policy ends – whichever is sooner.
  • You can make claims as many times as you need to while the policy lasts.

How much does Income Protection Insurance cost?

There are several factors that can influence the monthly cost of your life cover. Below are some of the factors that providers will consider when calculating the cost of your policy:

  • Job
  • Age
  • The percentage of your income covered
  • Health
  • Desired policy end date
  • Waiting period before payments commence
  • Duration for which each claim will be paid

Payments typically commence after the exhaustion of sick pay or when other insurance coverage ceases. The longer you wait for payments to begin, the lower your policy premium can be

How do I know if income protection insurance is right for me?

Some considerations before taking out a policy:
  • What would happen if you got ill and couldn’t afford to pay the bills?
  • If you’re employed, do you have sick pay to fall back on – and how long is this paid for? This may only be Statutory Sick Pay, which is just £109.40 per week.
  • If you’re self-employed, what would you do if you couldn’t work due to illness or injury?
  • Can you afford the level of cover you’ll need? You need to set premiums at an affordable level, but also make sure the policy will cover your bills if you do make a claim.

What’s the difference between income protection and critical illness insurance?

These are two very different types of cover. Income Protection Insurance pays a percentage of your gross salary as a regular payment until you can return to work.

Critical Illness Insurance provides financial assistance, usually in the form of a lump sum payment, if you're diagnosed with a critical illness covered by your policy. These policies typically do not pay out in the event of death and have no cash value at any time

What is Family Income Benefit?

Family Income Benefit is a type of term (it will last as long as you set it for, i.e. 20 years) life insurance designed for parents and families.

Its purpose is to provide regular monthly payments to your family in the event of your death or terminal illness.

The policy ensures a consistent, tax-free income payout up until a specified date to replace the lost income.

For instance, if you opt for a 20-year term policy and a claim occurs 10 years into it, the payout will continue for another 10 years. If the claim is made 15 years in, payouts would only continue for the remaining 5 years.

You have the flexibility to decide the coverage amount based on your income. However, it's essential to note that the larger the monthly payout, the higher your premiums will be.

Who can take out a Family Income Benefit policy?

Family Income Benefit could be suitable for families with young children, offering a regular income to cover living expenses with potentially more affordable premiums compared to other life insurance policies

Family Income Benefit alongside other policies.

You can bolt Family Income Benefit on to other protection policies so you’re able to best protect what’s most important to you. Some lenders may even offer multi-policy discounts, so it pays to discuss what's important to you in order to build a tailored solution