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LIFE INSURANCE

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Why have life insurance?

Life insurance is designed to pay out a lump sum of money should the policyholder (the life assured) die during the policy term. The most common type of cover is known as term assurance.

For this type of policy the term is linked to the length of the mortgage if the policy is taken to cover a mortgage debt. However, the policy does not have to be linked to a mortgage. If there is no mortgage to repay the lump sum payout can be used by the named beneficiaries, normally family members, as they wish.

Policyholders can select the number of years they wish to be covered for and this is known as the “Term”. There are two types of term assurance:

  • LEVEL TERM ASSURANCE – The amount of cover remains constant throughout the term of the policy. This type of policy is suitable to pay off an interest-only mortgage or to pay out a set lump sum.
  • DECREASING TERM ASSURANCE – The amount of cover reduces throughout the term of the policy (typically this is used to pay off the remaining balance on a repayment mortgage).

Most insurers also offer “whole of life” insurance which is designed to provide a payout whenever death occurs – in other words there is no set term attached to the policy. The amount of cover will normally remain constant throughout the term of the policy.

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