What type of life insurance do I need?

by | Friday 13th Dec 2019 | Mortgage Insights


If you’re one of the 8.5 million British adults with a family who should have a life insurance policy but don’t, then now is the right time to be looking at your options.

Life insurance should be a vital part of your financial planning. Chosen well, it gives you and the people you care about the peace of mind of knowing they will be financially secure should you die.

When you do start to research the cover that best suits you, you might well be tempted to compare policies and providers through one of the various price comparison websites that are available to you – but we’d strongly advise against this.

Looking for life insurance is not like looking for car insurance.

The possible negative consequences of buying the wrong motor policy are fairly limited and unlikely to be life changing. At worst you might be liable for legal fees or have to foot the bill for a replacement car for yourself if you decide to take third party cover only.

The dangers of picking the wrong life policy, on the other hand, can be serious and that means you should only make critical decisions on the type of policy that’s best for you if you honestly understand the different types of cover that are available.

So, without Googling it, can you put your hand on your heart and say you could give accurate definitions of whole of life cover, term insurance, decreasing term insurance, increasing term insurance, renewable term insurance, joint life cover and death in service benefits.

If your answer is no, then you should be talking to a professional broker before risking spending money on a policy that may not pay out in the way you expect.

Here’s our guide to the different types of cover outlined above.

Whole of life cover

Unlike term assurance which only pays out if you die before a specified date, whole of life insurance pays out regardless of when you die. This type of cover gives your family financial stability throughout your life.

Because there is an absolute certainty that it will pay out at some point, whole of life cover is usually more expensive than term insurance.

Term insurance

Term insurance is valid for a set period and ends on a specified date. This is often an appropriate type of cover if you want to ensure a large fixed cost – usually your mortgage, but possibly school fees – can be met on death.

At the end of the period insured – or term – you’ll usually be able to either let the policy lapse or choose to extend it (subject to further health checks, at the discretion of the insurer).

Term insurance of this type can also be called level term because the amount paid out on death is the same at any point during the life of the policy.

Decreasing term insurance

This can be a popular choice of cover for those who simply want an insurance policy that will whatever mortgage debt remains on their death. Since repayment mortgage debt reduces over the period of the loan, the payout decreases correspondingly.

Increasing term insurance

As the name suggests, this is the opposite of decreasing term cover – the payout rises over the period when the policy is in force. Some people choose this type of policy to take account of rising inflation or other costs – or in anticipation of an increase in their financial commitments over time.

Renewable term insurance

This policy is a cousin of standard level term insurance, in that when the initial policy ends, you’ll be able to renew it without need for further health checks.

Joint life insurance

A cheaper alternative to two separate life policies to cover both you and your partner, this policy will cover both of you, but will only pay out once – on the first death. After that, the cover will end.

Death in service benefits

Whilst a welcome addition to your financial security, death in service provision shouldn’t be seen as an alternative to life cover. Death in service benefits are offered by some companies, paying out to an employee’s family should he or she die whilst employed by the company.

The death doesn’t have to be at work or caused by the job they do. However, on average most death in service settlements are the equivalent of between three- or four-years’ annual salary of the employee, so won’t always cover all your financial commitments.

Death in service benefits may also include a spouse’s entitlement to a portion of the employee’s company pension.

This is a very simple overview of the different options that are around, but these policies are often complex and need to be considered in the context of your individual financial circumstances.

If you’d like to talk through your options, why not get in touch with one of our friendly advisers? We’d be happy to have an informal, no-obligation conversation to assess your needs and help you identify the best solution for you and your family.

Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority

 Your property may be repossessed if you do not keep up repayments on your mortgage.

Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.

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