Life Insurance

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Once you’ve bought your home, it’s just as important to protect yourself and your family from any financial risk in the future. It makes sense to take out life insurance that would pay off your homeloan in the event of your death, particularly if you have any dependents.

Level Term Assurance

In return for relatively low monthly payments, this policy guarantees an agreed amount of life cover (also known as the sum assured) over a fixed term – often the mortgage period. It is commonly used to cover interest – only mortgages, where the capital owed remains constant throughout the mortgage term. The lump sum is paid out if death occurs before the policy ends. Term assurance has no surrender value after the policy is ended.

Decreasing term assurance

This is the most basic type of life assurance. With decreasing term assurance, instead of the life cover staying at the same level, it reduces over the life of the policy and only pays out if death occurs before the policy ends. This type of cover is popular among those taking out repayment mortgages, as the sum assured reduces roughly in line with the amount of capital owed on the mortgage through time. So if death should occur before the period ends, the policy pays out a proportion of the sum originally assured, which should be enough to pay off the amount of capital still owed to the lender. It is also the cheapest form of life insurance.

Whole of life insurance

As the name suggests, ‘Whole of Life insurance’ provides life insurance cover for the whole of your life. Unlike term insurance, which only pays out if you die during the policy term.

The sum insured is paid to your dependents following your death.

This type of insurance is more expensive because it is certain that the life company will eventually have to pay the sum insured. It can be used as part of an IHT planning strategy.