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Term vs whole of life insurance- which is best?

Regardless of your religious beliefs, death might not be the end – your mortgage and financial obligations could outlast you! This is where the right life insurance comes in. Deciding whether you need term or whole of life insurance can be tough, not least because of widespread confusion about the benefits of each type of policy.

Whole of life insurance is designed to last as long as you do. You pay a premium every month and your loved ones receive a payout when you die. These policies are often considered the crème de la crème. However, for some, term insurance can be an appropriate choice.

Term insurance only covers you for a set period, 25 years, for instance. However, policies are often cheaper for younger clients and there will still be a cash payout if you die within the set period. Mortgage life insurance may only cover your outstanding mortgage, so it might be worth thinking about getting a policy that includes more if you want to leave your family with a nest egg.

One benefit of term insurance is that it gives you the greatest death benefit for the lowest premium when the policy is first issued. This said, it might not be the cheapest over the full duration of the coverage required. Because term premiums increase at each renewal, for older people premium costs will far exceed the premium that would have been charged for a whole life policy had it been originally purchased.

If you think you only need life insurance for a short period, term insurance is likely to be the cheapest option. Typically, term insurance is the best option if cover is only needed for 10 years or less. Of course, for long periods, whole of life insurance might be your best bet.

Increasing term insurance policies can also be a suitable option. These differ from regular term insurance policies in that the size of the payout increases as the term of your policy continues. Put simply, this means the later in the term you pass away, the larger the payout. For example, a fixed term policy initially worth £100,000 with a 3% annual increase will be worth £130,477 ten years in.

For those who might want to take out life insurance to cover debts like a mortgage in the event of their death, decreasing term insurance might be the best option. As the name suggests, the payout decreases over the life insurance term. This is a popular option because the payout size falls in line with the amount of money that you’ll need to clear existing debts. Typically, this is the cheapest form of term insurance.

Taking out life insurance is a big decision, so it is recommended to get qualified advice before proceeding

Sources

https://www.which.co.uk/money/insurance/life-insurance/term-life-insurance-explained-auufx8h05328

https://www.thinkadvisor.com/2016/07/17/10-advantages-of-term-life-insurance/#

https://www.confused.com/life-insurance/mortgage

The WHAT IF plan?

Have you ever thought about … what if? Just 2 words but with so much impact. What if … you could not work? What if … you fell ill? Or more seriously what if you died tomorrow? …
No one expects or wants these events to happen, planning for the consequences of the events is much more important.

Lets take a look at just one scenario and the impact this could have on you –

What if … you are unable to work?

We all understand the importance of insuring your tangible assets such as cars, household buildings and contents – now lets say that you come home one day and they are just a pile of ash. To add to the catastrophe you realise you have forgotten to renew your household buildings and contents insurance.

What would you do? How long would it take you to get back to the position you are in today? Probably a year or two perhaps, maybe longer? The point is you can. Your possessions, car or house do not earn money, you do. You are the income producing asset in your home.

We often are told ‘I can’t afford the premiums’. We do understand it can be difficult particularly during current economic conditions. However, the problem is not finding £40 per month out of your salary. The problem is your family finding £1,000 per month when they don’t have your income coming in. A good budget plan can help to review your monthly expenses and concentrate on your priorities.

Now think about your partner and if he/she is working or a mother/father or both! – the jobs that they do and the cost of childcare arrangements are often underestimated. What if … they were unable to work?

Income protection insurance is designed to replace a part of your lost earnings, helping to maintain important items of expenditure, to help you to meet the cost of running your home when illness or accident prevent you from working.