Getting the right life insurance policy means working out how much money you need to protect your dependents. This sum must take into account their living costs, as well as any outstanding debts, such as a mortgage. This guide will help you understand the different types of policy available, how they work and the difference between joint and single cover.
Choosing the right type of life insurance
Level term insurance
Not sure what something means? Have a look at our Protection insurance glossary.
Your policy lasts for a pre-agreed number of years and pays out a set amount if you die during that term.
This type of policy can either cover a fixed debt, such as an interest-only mortgage, or provide a lump sum for your dependants in the event of your death.
Pros: Simple and affordable for most.
Best for: People with dependents and those with an interest only mortgage.
Decreasing term insurance (also known as mortgage protection)
Your policy lasts for a pre-agreed number of years, which usually matches the length of your mortgage, and pays out if you die during that time.
Each year the potential pay-out decreases as it is designed to be used with a repayment mortgage where the outstanding loan decreases over time.
This means that this type of policy is cheaper than a level term insurance.
Pro: Affordable for most.
Con: Typically only covers mortgage balance.
Best for: Those with a repayment mortgage whose dependents can cover other expenses.
Family income benefit insurance
This type of policy is similar to level and decreasing life insurance (see above), except that it pays out a regular income for the remaining term rather than a lump sum.
If you match your current or future take-home salary, for example you can make sure your family won’t need to change their standard of living.
Pro: Very affordable for most.
Con: Won’t pay out for long if the policyholder dies late in the term of the policy.
Best for: Best for people whose dependents might suffer financially if the main earner dies.
Your policy covers you for the rest of your life so your dependants get a pay-out no matter when you die.
This type of policy is typically more expensive than those that cover a set period of time.
Pro: Pays out to your dependants as long as you keep up with monthly payments.
Con: More expensive than shorter term policies.
Best for: It is generally used to provide money to cover a funeral or for inheritance tax planning.
Pension term insurance
This type of policy is no longer available for new customers, however if you bought one before it ended in 2006 you might want to keep it for its tax benefits, as the premiums are eligible for tax relief.
Should you get a joint life policy?
Who needs to be covered?
‘Single life’ policies cover just one person. A ‘joint life’ policy covers two people and when one person on the policy dies, the money is paid out and the policy ends.
You must decide whether joint policy pays out on first or second death as this will determine when the policy ends.
When choosing between these options think about:
- Affordability – a joint life policy is usually more affordable than two separate single policies.
- Work benefits – if one of you has work ‘death in service’ benefit, you might only need one plan.
- Health – if your joint policy is with someone in poor health, this might increase your monthly payments
- Cover needs – do you both have the same life insurance needs, or would separate policies with different levels of cover be more appropriate?
This article is provided by the Money Advice Service.
Some important information about Rest Less Money
We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.
When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.
Key things to remember when using Rest Less Money:
We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.
No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.
Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.
A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested.