Having life insurance in place is one way that you can provide yourself and your family with peace of mind in the event of your death. There are two main types of life insurance cover available in the UK.
What are they?
Level term life insurance - This product has a level fixed sum assured amount (the 'sum assured' is the amount paid out under the policy in the event of your death). This can be used for those people who wish to not only cover their outstanding mortgage balances but can also add in such factors as: other personal debts, a second charge on the property for example. It can also be used to create a fund for living expenses for those left behind.
This can be a preferred option for many families where there is a single main income earner. The sum assured under a level term insurance typically does not decrease over time and is fixed for the duration of the policy.
Mortgage protection life insurance - As the name suggests, this policy is tied to a mortgage that you may have on your home. Mortgage life policies may also be known as decreasing term assurance, which means that the amount of cover will fall in line with the amount outstanding on your mortgage. In the event of your death, the policy will typically pay off the balance of the mortgage.
What does it cover?
As mentioned above, level term life insurance can cover a fixed term amount that, if paid out, can be used as the beneficiary sees fit. This could include mortgage balance repayment, and paying off debts etc. Mortgage life insurance on the other hand goes directly to clear your mortgage debt in the event of your death.
Why do I need it?
Mortgage life cover may be required by mortgage lenders before they will lend you money to buy a house. They see life insurance as a protection insurance against the money they lend you in the event of your death. Now while that sounds morbid, the policy also works in your favour. This is because, in the event of the policy being paid out, the surviving partner will no longer have to find the mortgage payment each month and this can mean keeping the roof over their head.
Level term insurance is normally a lifestyle choice. As well as covering a mortgage, if you wish to provide for your family in the event of your demise by leaving a lump sum, then a level term life product may be the right option for you.
It should also be said that once you have taken out a life insurance policy, it is not cast in stone, you can still shop around in a few years time to see if cheaper cover is now available. Or your circumstances might have changed, perhaps by moving to a bigger house, or having a new addition to the family. These types of life events can mean that you should consider revisiting your cover levels.
On this basis, you may wish to consider talking to a specialist that can search the market for you and assist you to find the best product to suit your personal circumstances, be it a mortgage life cover product or a level term insurance offering.
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