Insurance is for life, not just for Christmas

It's something that nobody likes to think about, but the fact is that life insurance will ensure your family is looked after should something happen to you.

Like all types of insurance, life insurance has different policies for different needs.

Term assurance is taken out for a fixed amount of time with the proviso that if you survive the term of the policy, there is no payout.

Term insurance payouts can either stay at the same amount throughout the life of the policy (known as "level term assurance") or decrease each year until they hit zero.

"Decreasing term assurance", as it is known, is most useful for repayment mortgages, where the capital owed falls over time. The cost of this type of cover costs less.

A third option for policyholders is "increasing life assurance". As the name implies, payouts automatically increase by an agreed amount or percentage every year until the policy expires, as do premiums. This policy is useful for people who want to match a life insurance payout to future inflation.

Some people prefer to ensure their families will receive an annual income over a set number of years.

This is what family income benefit (FIB) policies do. You decide on the income and the how long you want it to last, then insure for a set number of years - usually until your children are grown up. The policy will pay out on your death.

It is a "decreasing" policy. That means it will pay out over the remainder of the term itself. So, if you die with 10 years left in the policy, it pays out 10 years' worth of income. If you die with five years left, it pays out five years worth of income, and so on.

The advantage of these policies is that they are less expensive than regular life insurance policies, again because the benefits payable decrease over time.

One final type of policy is called "whole-of-life". This is where a payout will be made as long as premiums are kept up to date. In other words, the protection is not for a fixed period but can last indefinitely, subject to regular reviews.

Premiums are invested in the stock market, after taking out expenses and the provision of immediate cover. In the past, good stock market performance meant the premiums were lower. But this is less likely to be the case today.

Recent share price falls have meant that premiums are much higher at review times and often become prohibitive as people reach retirement age. Generally, whole-of-life policies are not sold very often nowadays.

Several factors can affect the cost of your premium, so it's worth shopping around before committing to one. Your age and gender, whether or not you smoke, or are a vegetarian, the amount and age of family members, your current health, future inheritances, income, job type and existing insurances or savings can all attribute to a higher or lower premium.

With all this in mind, review your policy regularly, or whenever your circumstances change. Shopping around for a cheaper life insurance quote could save you money, and will give peace of mind that you have the right type of cover for you and your family's needs.



J Tillotson is a UK author specialising in insurance