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Have you thought about what might happen if you develop a long term illness or die young? If you have people who rely on you to feed and clothe them it's not smart to ignore what happens to them if you're no longer around. The following blog looks at different types of insurance policies you could consider taking out.
Serious Illness Insurance
When it was first introduced in 1983, serious illness insurance only provided cover against cancer, heart attacks, strokes and bypasses. It was known as dread disease insurance or critical illness cover, and the latter name is sometimes still used today. Since then we have seen an explosion of cover for up to 154 different conditions ranging from Alzheimer's to tunnel vision.
Cover can be bought to provide protection against a variety of diseases and conditions which although not always life threatening, can seriously impair your quality of life or ability to carry on working. Generally the cover is provided to help pay for things when you are ill, including day-to-day outgoings, adapting your home to cater for a disability, or paying the mortgage.
Some policies are structured to repay some of the mortgage on diagnosis of a condition, whilst others pay the full amount immediately with no further payment later. Policies can be bought on their own, or "bolt onto" any life insurance you take out to repay the mortgage in the event of your death.
Level Term Life Assurance
Nothing is certain except death and taxes. That's why they call it life assurance not in insurance; you are assuredly going to die one day.
Level term is the simplest life assurance product. You decide how much you would like the policy to pay out on your death (level) and how long you want the policy to run for (term). The insurance company will then calculate a monthly premium based on the pay out, the period, your age, and your state of health. Once set up, as long as you carry on paying the premiums, the insurance company pays out the agreed amount as a tax free lump sum if you die within the period of the policy.
Other Life Assurance
A slightly more complex, and usually a bit more expensive, product is a ‘whole of life' policy, which as it suggests can be for the whole of your life, not just for a fixed term.
‘Mortgage term assurance' is specifically designed to pay off your mortgage in the event of your death. The payout level decreases over time as you pay off your mortgage through life, and the term is between the policy start date and the day your mortgage is fully paid.
Family Income Benefit
Another form of protection insurance is called ‘Family Income Benefit' (it has nothing to do with state provided benefits). If you die within a fixed term, your family get a regular tax free payment for the remaining period. This can be the cheapest form of life assurance, so it's ideal if you're looking for ways to save money.
Deciding which one is best for you between term and FIB is, cost aside, a choice between whether you'd prefer the payout as a lump sum, or a regular income. In our next blog post we will look at how much life insurance cover you need to protect your family.