Use this quick guide to help you understand the different types of life insurance.
Term Life Insurance
Term insurance comes in several forms. There is level term which has a guaranteed sum assured and a guaranteed premium. It will run for a finite time which could be anything from one year to fifty years. This is the simplest form of life insurance and the one used in most cases.
It means if you die it will pay out to your chosen beneficiary the sum assured you have chosen at outset. This can be written, like most policies, in Trust to avoid Inheritance tax. That is a subject on its own.
The question you must ask yourself before you take out life insurance is, would anyone suffer financially if I were to die? If the answer is yes. Then you need life insurance.
The question is how much? And which type. Well, you would ideally need enough of a lump sum to be invested at 5% return to equal an income to replace your net income. In other words leave your family financially in the same position as they were before your death.
In the calculation you would deduct any employer death in service benefits and any pension that may be paid to your beneficiary. You would also deduct the mortgage amount as it should ideally be covered under a separate mortgage decreasing term policy. As life insurance brokers we have our own software which works these figures out for you. It takes the guesswork out of the equation.