Life insurance or life assurance? There is a difference. Life Insurance provides you with insurance cover for a specific period called the “term”. If you were to die whilst the policy is in force, the insurance company pays out a tax-free sum. If you survive to the end of the term, the policy is finished and has no residual value whatsoever. It only has a value if there is a claim, much like car insurance. Life assurance on the other hand has an element of investment to it. Also known as whole of life cover, often there is no set policy term. A claim can be made whenever the policyholder dies meaning the pay-out is almost guaranteed.
Most people need a form of protection in case of unexpected death, but it becomes more important if you have a partner or family. Should you have a policy in place your partner would have to support the children and maintain the payment of outgoings such as the mortgage, even though there is less income. At a time when you could be dealing with the shock of a death it is easy to see just how important life assurance can be to smooth the financial turbulence.
To understand which policy best suits your needs you need to consider what the purpose of covering your life is. With life assurance the purpose is to provide a beneficiary with more financial freedom. The premiums you pay in may be higher than for a life insurance policy, but you are guaranteed some return for your investment. Life assurance provides peace of mind, your loved ones will receive a lump sum whenever you die, and the money will be working for you rather than vanishing when the term ends. Life Insurance is more concerned with making sure you can still provide for your family if you were to die, by giving them the financial support required to ensure they can pay the bills, mortgage or any other responsibilities.
Most people do not have sufficient cover; this is mainly because they do not know how much they require. The level of cover is of course partially dictated by how much you can afford, but it is worth considering the consequences of not being adequately covered at your death.
At Spot on Mortgages we do not offer investment advice, but we can discuss your options with you to help you decide which product is best for you*. As always, I am happy to review your specific circumstances so get in touch if you need some advice.
*A non-investment whole of life policy is generally only considered appropriate for modest sums (Circa £10-£20k) to provide for things such as funeral cost.