Which life insurance policy is right for you?

Life insurance is designed to pay out when the policyholder dies. It’s intended to ensure your family are not left facing difficult choices. These could include struggling to pay the mortgage or keep up with school fees. 

Given everyone’s circumstances are different, it’ll come as no surprise to learn that there are several types of life insurance to choose from. 

How long do you need life cover for?

Cover until you die

If you want a policy that pays out whatever age you are when you die, you could apply for whole of life insurance.

Alternatively, you could take out a term life insurance policy, but if you die outside of the term, which could be from one to 40 years, there will be no payout.

Cover while you have a mortgage

You could choose a decreasing term life insurance policy that reduces each month, in line with your mortgage repayments.

You can also choose a fixed term life policy to keep the payout the same throughout the term, so you could pay off the mortgage and release the rest of the money to give to your family. Unlike decreasing term policies, the amount paid out is fixed when you take it out. With decreasing policies, the payout diminishes as the term end date draws closer.

Cover when you are older

As you get older, life insurance policies can become more expensive, so it pays to shop around and if you’re interested get on board sooner rather than later

The increased cost is typically because:

• You are getting closer to your life expectancy age

• You have developed health issues

However, there are life insurance policies you can choose:

• If you are over 50 and healthy: You could get a term or whole of life insurance policy, but the longer you wait to apply, the more expensive your premiums will become.

• If you are over 50 and have suffered from health issues: You may get accepted for term or whole of life insurance, but the pool of potential insurers will be smaller and your premiums are likely to be relatively expensive.

You could apply for an over 50s life insurance policy, which guarantees acceptance, regardless of your health, and offers a fixed payout based on the premiums you can afford. However, it’s not without its disadvantages, which include the likelihood that you’ll pay in more than is paid out if you live long enough.

What kind of payout do you want?

There are two types of payout, depending on the policy you choose you could get:

• A lump sum: This could help pay off your mortgage, or give the ones you leave behind a pot of money to live off.

• An income: This could help your family pay their monthly bills, such as mortgage repayments or rent. However, the income usually stops at the end of the policy's term.

You only get a lump-sum payment with a whole of life or an over 50s life insurance policy, but you could find both options with a term life insurance policy.

Which payout is best?

It depends on when you die:

• If you die a few months before your policy ends, an income is only paid for the remaining months, but if you choose a lump sum payout, your loved ones will get the entire amount in one. 

• If you die early on during the policy, an income will pay out for the remaining years, giving support to your family. However, if you choose a lump sum, they get the entire payout as one payment, potentially offering them more in return for your premiums.

Life policy pros and cons

Here are the main pros and cons for each type of life insurance policy:

Pros and cons of whole of life insurance

Pros

• Pays out whenever you die

• No age limit for claims

Cons

• Not all causes of death covered

• Premiums can exceed payout

Compare whole of life insurance policies here

Pros and cons of term life insurance

Pros

• More payout options available 

• Can fit around your mortgage

• Premiums stay the same throughout the term

Cons

• Not all causes of death covered

• Can only claim during term

• Payouts fall over time if you have a declining term policy

• Inflation can erode the value of the fixed-term payout

Pros and cons of over 50s life insurance

Pros

• Guaranteed acceptance

• Can pay low premiums

Cons

• Only available for people aged 50 years plus

• Premiums can exceed payout 

• Policyholders forgo any money they have paid in if monthly premiums are missed

Compare over 60s life insurance policies here