Life Insurance Explained
What is life insurance?
Life insurance is basically a policy that you purchase which will pay out a specified cash sum if you die. Policies can be held by an individual or in joint names (usually a spouse or partner). Depending on the type of product you purchase, the pay out will be either a lump sum or it will be a regular monthly income paid out to a named beneficiary, such as a spouse.
Term Life Assurance is set up for a specific term normally to cover the life of a mortgage or until children have left home. A Whole of Life policy lasts for the whole of life providing you keep paying the premiums.
Term Assurance policies do not generally pay out anything if you survive past the fixed term of the policy.
The two main types of Term Assurance are Decreasing Term Assurance and Level Term Assurance. The pay out on a Decreasing Term Assurance policy reduces over time and is quite often used to cover the outstanding balance on a capital repayment mortgage. The pay out on a Level Term Assurance policy remains the same for the policy's duration and can also be used to cover the outstanding balance on an interest-only mortgage.
A Family Income Benefit policy pays out a regular monthly income. This can be used to cover regular household and family bills if one or more wage earners were to die.
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