Life Insurance – what product should I go for?

Do you have life insurance, income protection insurance or critical illness insurance? Do you remember what type you took out and how much it covers you for?

I know that I have two life insurance policies, one taken out with my first mortgage in circa 1993 and then a second policy when I bought my third  house so 2009?

I think that the first policy was a 25 year mortgage repayment policy so that has most likely expired and the second was another 25 year mortgage repayment policy. It is a fact that I REALLY need to check what is going on with my life insurance.

As for income protection insurance. It has been on my to-do list for six months. And I will sort it out by the end of April. Commitment made. And I don’t have critical illness insurance.

Here is some great guidance from LifeSearch on different types of insurance.  

We usually start thinking about taking out life insurance once we’ve bought a home and are paying a mortgage. Or perhaps you’ve started a family and you want to put the necessary measures in place to ensure they’ll be looked after should anything happen to you.

The more big milestones we reach and the more precious things we gain in life, the more reason to protect them. However, there’s more to life insurance than this. Until you start researching, you might not realise all of the different insurance products available to protect the life you love.

Life Insurance

Did you know that 1 in 2 households with a mortgage don’t have life insurance? That’s a big statistic when a mortgage alone is such a huge responsibility – that’s before you add in partners and children who would have to cover the mortgage repayments if you pass away.

Death is definitely not something you want to think about, particularly in your 20’s and 30’s, but there’s no denying that the unexpected can happen at anytime, right? If the worst happens to you, life insurance will help to ensure your partner or family is supported financially and not left to pay the bills alone.

Life Insurance - what product should I go for

Monthly life insurance payments secure a lump sum payout should you die. You might have heard how expensive funeral costs can be – the last thing your family want to be worrying about in that situation is how to cover the costs. A life insurance payout can really help to ease the worry and pain in a difficult time. Surely that’s worth a small percentage of your monthly paycheck?

Income Protection Insurance

Income Protection Insurance is a different product, in that it doesn’t pay out in the event of death. It’s designed instead to give you protection if you’re not able to work and earn an income. This is arguably the most essential cover available. If you think about it, you’re more likely to be off work sick than you are to pass away before retirement.

Should you fall ill, become disabled or injured, income protection insurance will replace part of your income. Even if your illness or injury turns out to be long-term, this insurance will continue to pay out either until you can start working again or until you retire. It covers most illnesses that leave you unable to work, both long and short term.

Taking out this insurance means you can still pay your bills and provide for your family. It’s your financial safety net in any number of situations that could result in you being out of work.

Critical Illness Cover

This might sound similar to income protection insurance but it is a product in its own right. Critical illness cover has you covered for many serious illnesses and different policies cover different illnesses, so you have the freedom to choose which matter to you. Some policies can even pay out when your children fall seriously ill.

You might opt for critical illness cover if perhaps you have a history of cancer within your family and want to ensure you have plans in place in case you’re unfortunate enough to be affected.

Life Insurance - what product should I go for

You might be thinking that this sounds very similar to income protection insurance. That’s true; both provide cover for illness or injury. However there are a few differences. Firstly, critical illness cover will cover you from specific illnesses and injuries, whereas income protection insurance is broader and will cover practically any medical condition that prevents you from working and earning an income.

Also, income protection insurance allows you to claim as many times as you need to, however with critical illness cover you can only claim once and then your policy terminates. Lastly, critical illness cover can be taken out alongside a life insurance policy and as a joint policy with your partner, however income protection is an individual plan.

Family Income Benefit

Family income benefit provides a regular monthly or annual income for your family in the event of your death. It’s designed to help cover living costs, as opposed to paying off a mortgage or debts. The policy runs within a set term and if you die within this period, it pays out a regular tax-free income to your family until the term ends. The benefits of the fixed term with family income benefit is that if you have a young family, you can keep the policy running until they’re grown ups and have their own income to fall back on.

Yes, this does sound pretty similar to life insurance – but it does have it’s differences. Life insurance gives a lump sum if you die within the term, however family income benefit is based on regular payments. Lump sums can be overwhelming and easily mismanaged, so regular payments are more attractive for many families. It’s also different to income protection insurance, in that family income benefit protects you if you pass away as opposed to if you are unable to work through illness or injury.

Summary

There are a lot of different factors that determine the prices of these policies and it all comes down to the individual and their personal circumstances. If you have questions about any of the products mentioned above – and any others you might be considering – then get in touch with LifeSearch for award-winning free advice from their team. Life insurance might seem a little daunting as there’s a lot of options, but it needn’t be and it’s definitely worth getting to the bottom of.

This is a collaborative post.

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Lynn Beattie

Aka Mrs MummyPenny

Personal Finance Expert

I write about personal finance made simple, lifestyle choices that will save you time and money, as well as products and services that offer great value.

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