Fact File: Life Insurance

Life insurance helps your dependants to be financially secure in the event of your death.

When you buy life insurance you stipulate the figure you want the policy to pay out when you die – this term is the sum assured. The premium you pay is based on this amount, and on your age and gender.

Your payments will also be based on the type of cover you choose. There are two fundamental types of life insurance: term assurance and whole-of-life cover, and there are many variations within these categories.

Term assurance is often purchased at the same time as a mortgage, and usually covers the same 25-year period. If you haven’t died at the end of the period, you don’t get anything back. It is a simple insurance with no element of investment which protects your family by paying out a lump sum should you die within a specific time period.

There are several types of term assurance. Level term gives the same payout during the whole of the life of the policy which means that you beneficiaries would receive the same amount whether you died on day one of the policy or whether you died right at the end of the term. It is usually bought with an interest-only mortgage, where the debt only has to be paid off on the final day of the mortgage term.

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