Your life insurance policy is essentially the contract of cover between you and your insurance provider.
It provides your loved ones with a cash life insurance pay out if the worst were to happen to you.
In your policy, you’ll nominate beneficiaries who'll benefit from your pay out when you pass away.
You’ll pay a monthly premium for your protection and will be covered for both natural and accidental causes of death.
It's important to make sure you're familiar with the terms and conditions of your policy to ensure it protects you against everything you require.
Typically, insurance policies in the UK are term-based or whole of life.
This means that your policy will either expire after a certain period of time (and a pay out is made if you pass away during this time) or it will last until you pass away (guaranteeing a pay out).
Keep reading to understand how each policy works…
Level term life insurance
Level term life insurance provides cover for a specified period of time (usually up to 40 years) and if you pass away during this time, a pay out is made.
Your sum assured (cover amount) will remain the same throughout your policy.
This means that no matter when you pass away (during the term) your loved ones will always receive the same amount.
This makes level term cover ideal for helping to pay off large expenses such as an interest-only mortgage, debts and rising funeral costs.
Decreasing term life insurance
With decreasing term life insurance, the amount paid out to your loved ones reduces over time.
As with level term cover, you’ll be covered for a specific period of time and a pay out will be made if you pass away during the term.
This type of cover is great for helping to pay off a repayment mortgage as you can have your sum assured reduce in line with your remaining mortgage balance.
Whole of life insurance
Whole of life insurance provides lifetime cover, ensuring your loved ones receive a pay out when (not if) you pass away.
You’ll be covered for the rest of your life, meaning you’ll continue to pay premiums until you pass away to keep the cover in place.
If you take out a whole of life policy at a young age this can lead to you paying more into the policy than what it’ll pay out.
As a result, whole of life insurance tends to be well suited to those who’re later on in life but still in good health.
A pay out from whole of life insurance can be used to help cover funeral costs or be left as an inheritance for your loved ones to enjoy.
Over 50s plan
An over 50s plan guarantees acceptance to UK residents aged 50-85, with no medical information required.
Once you’ve taken out a policy, you’ll be covered for life.
As you don’t have to provide medical information, your premiums will be based on your age and how much cover you want to take out.
Due to the unknown risk you pose to the insurer, premiums tend to be higher and your sum assured will be capped (this is usually at around £20,000 depending on your personal circumstances and budget).
There’s also usually a waiting period added to the policy (the first 12 - 24 months).
No pay out will be made if you pass away due to natural causes during this time, but your premiums will be refunded.
Which type of cover is best for you will depend on why you're looking to secure cover.
You can read our full guide on term life insurance vs whole of life insurance.
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