Life insurance

Life Insurance Guide for Property Investors

A life insurance policy is a contract between you and your life insurance company which is designed to pay the beneficiaries of the policy a lump sum in the event of your death. Provided you set the insured amount correctly you will have the knowledge that should you meet an untimely end your family will taken care of financially.

Types of life insurance policy

There are numerous types of life assurance policy available and the monthly premiums will vary depending on the sums assured and the policy conditions. Age, health and type of occupation will affect the premiums.

Level Term insurance – This is where the amount that would be paid on death remains constant throughout the term of the policy. This type of policy was commonly used to cover interest only mortgages as the full mortgage loan would stay constant over the whole of the mortgage term.

Decreasing Term assurance – This type of policy was often used to cover capital and interest repayment mortgages where the amount of the mortgage loan would gradually decreased to zero over the term of the mortgage. The payout sum on the policy will reduce over time as the outstanding amount on the mortgage loan reduces.

Increasing term assurance – This type of policy can have the sum insured revised at certain intervals. When the sum is increased the premiums will increase. These policies often include conversion options.

Renewable Term assurance – This is a type of life insurance policy that is renewable at the set expiry date (usually at the age of 65). Usually on renewal, the cost of the premiums will increase.

Index linked term assurance – this type of policy anchors the sum assured and the premiums to the RPI (Retail Price Index.) In some instances increases will be automatic but in others you will have to renew every year.

Whole-of-life assurance – This type of policy guarantees to payout of a lump sum should the policyholder die, whenever this is and as long as the policyholder maintains the premiums the cover is assured. Premiums tend to be more expensive but usually stop after an agreed time while the policy remains in force throughout your lifetime.

Convertible term assurance – this allows the policy holder to convert the term policy to a whole-of-life policy at the end if the fixed term.

Family income benefit – This type of policy provides benefit on death to be paid out to your family as regular payments as opposed to a lump sum. This will provide them with a regular income over the agreed time which is set at the beginning of the policy. This type of assurance can be used for specific purposes such as University fees for children.

Endowment life assurance policies – These were more common during the 1980s and were often tied to interest only mortgages. They were designed to guarantee a basic lump sum at the end of the policy with bonuses being added each year. Often there was a terminal bonus added. They have now fallen out of favour.

Critical Illness – It is more common for people under retirement age to develop a critical illness than to die . With this type of policy if you are diagnosed with one of the critical illnesses set out in your policy, the policy will bay out the sum assured. Note that payout is on diagnosis and not for the treatment of the disease or condition.

Features of life insurance policies

When you are choosing a life insurance policy it is important to seek guidance from a specialist to explain to you exactly the type of policy you need and what it should provide.

Choosing a life insurance policy – When choosing which type of life insurance policy to take out, it is important to consider every aspect of your and your families situation. Only then will you be properly able to work out the cover you need.

Below are some common reasons for taking out a life assurance policy.

• Security for children – If you are the primary provider of childcare to your children you may want to ensure that they will be properly provided for should something happen to you.
• Mortgage Payment cover – If your died or became seriously ill, could your spouse or family continue to cover mortgage repayments.
• Income Protection – This is a common reason for choosing to take out life insurance. This type of insurance will calculate the net salary of the earner, the number of years required to maintain the family and any additional expenses to set the sum assured.
• Children’s education – University education can be expensive but policies are available to cover this in the event of your death. These can include school fees and university tuition expenses.

There will be numerous other reasons for acquiring life insurance with premiums set to suit the amount of cover you need. Generally speaking the size of the payout will linked to the size of the premium.

Footnote

With any type of life insurance policy it is vital that you fully disclose any medical conditions that you have. In the event of a claim the insurer will check your medical records and if you have failed to disclose a condition that you had when you took out the policy, the insurer will not pay out.