The main purpose of UK life insurance is to financially protect your dependents if you die, but in some cases it can also be used as an investment vehicle. Here we compare the cover provided by term and investment type life insurance.
Life insurance falls into two key categories: term and investment-type.
This type of policy will only pay out if you die. If you survive the period that the insurance is taken out over (the term), you receive nothing. Many people have policies for the same term as their mortgage, so that they know that their spouse and/or dependents will not be left with the burden of huge mortgage debts if they pass away. Others take out a policy to cover them only whilst their children are financially dependent upon them.
Investment-type life insurance
Here, your beneficiaries receive money from the insurer if you die, and in this respect it is similar to term insurance. However, as its name suggests, investment policies also build up into a cash fund whilst you are alive, and if you survive the term, will pay out a lump sum to you.
Whilst it may seem obvious that investment-type is the better of the two, bear in mind that it is also the more expensive option. Experts advise that you should not combine your life insurance needs with your investment ventures, and that if your key concern is to protect your family when you are no longer here, term insurance should give you all the cover you need without costing too much.
Once you have decided which route you are going to take, you must then decide how much cover you need. Speak to the insurance company, as well as your financial adviser if you have one, as it is important that you get a level of cover that is appropriate for your financial situation both before and after you die.
When all the decisions have been made, you will be required to fill out a proposal form. As well as basic questions about your age and occupation, you will also be asked to give details about your health and any conditions that you currently have or have previously suffered from. Here, it is crucial that you answer all questions fully and honestly, as failure to do so may jeopardise a future claim.