Buying life insurance is actually a pretty complicated endeavor and one that should not be taken lightly. One of the first things to do is to arm your self with information about what all of the insurance terms mean. Take the title of this article for example. There are six separate words that have different meanings when taken individually, but when you put them together in a sentence, they mean something very different.
Term Life Insurance means insurance that pays out a specific lump sum if death occurs within the period specified in the policy. If there is no death, you have value or do not receive any payout at the end of the term. Term policies are the easiest to arrange and they cost the least of all types of policies.
Premiums are the amount you pay, on a monthly basis, to have insurance of all kinds, not just life insurance. A fixed-term life cover let’s the buyer decide how long they want to have coverage. You can decide you want to be covered for 2 years or 50 years.
You can also choose between level cover or decreasing cover. If you choose to buy level life insurance cover, then the sum you want to be paid out stays the same over the term of the cover. If you choose to buy decreasing cover, then the life assurance decreases as the outstanding balance on your mortgage gets lower.
The term fixed or guaranteed premium means that you buy a term life insurance policy where your premiums will stay the same no matter how long you have the policy. You can get cheaper insurance premiums if you buy what is called a reviewable premium. What this actually means is that for a few years, your premiums will be lower than market but, after that period of time is up the premium will be reviewed and it will be raised to at least current market levels.
This substantially increases the cost for your insurance and it could actually make the eventual increase more expensive than if you had locked in a fixed rate earlier. An example of how this could work is if you had chosen to take the fixed or guaranteed option, when you took out your policy, you would have been given a premium rate that was say 10/month for 2000 coverage.
If you had purchased a fixed rate policy your premium might have been 15/month at the time. When your policy is reviewed, you could receive a new premium that is 20/month thus paying more in the long run that you saved.
There is another variable to think about, when buying insurance, is whether the policy you are looking has convertibility options. Convertibility has to do with being able to continue your policy at the end of its term with little extra cost other than to have a new medical exam and to fill out a lifestyle survey.
You should also check to determine if the type of coverage you need has any Tax Relief associated with it. In the UK, there are about 50% of life insurance policies that qualify for Tax Relief benefits.
A further option to consider id whether to buy Mortgage Repayment Protection which helps you be able to pay your mortgage if you happen to have an accident or illness that keeps you from being able to work. This protection also kicks in if you have been involuntarily laid off or lost your job for reasons other than performance.
There are many things to consider when buying Life Insurance in the UK. Whether you choose to have a Fixed or Reviewable premium is one the the biggest considerations when it comes to cost and savings.