Life insurance is a protection policy. The policy, if written as a term assurance, will pay out a lump sum should you pass away during the life of your plan. This lump sum will be paid to your loved ones or whoever you elect to be a beneficiary.
Losing a loved one can cause both an emotional strain and financial strain, a life policy can help ease that strain for them. The benefit payment is paid tax free for your beneficiaries to use however they see fit. It could pay off your mortgage or any outstanding debt or just help them get back on their feet.
There are two main types of term life insurance:
Decreasing – the amount of cover paid out reduces during the term of the policy, this is usually used alongside a repayment mortgage
Level – the cover remains the same and doesn’t change over time. This policy is usually more expensive but is good if you have a set amount in mind that you would like to leave a loved one.
Both types of cover are usually taken out to protect our dependents financially, especially young dependents if they are left unable to pay the bills.
LV have advised that the approximate cost of raising a child from birth to 21 is £230,000.
Our advisers say that if you look at what is outstanding on your mortgage and other debts and how much your dependents would need to maintain their lifestyle until the ages of between 18 and 21 then you should arrive at an adequate amount of life cover to take out.
If you write the life assurance in trust this will avoid any payout being held up by probate.