Life insurance, what types are they and what do they do? 
 
You may be surprised to know that life insurance isn’t always about death… 
 
There are several different types of insurances, they all do different things and are made to cover certain aspects of finance. 
 
It’s not for leaving millions of pounds behind, it’s for making sure your financial commitments are met. Or maybe to minimise the future costs too you or your family. 
 
Let’s start with the most well known one. 
 
Straight, No Frills, life insurance. 
 
When you die, this pays out. It may be set up to cover a mortgage, a portfolio of mortgages or debts. 
 
This quite simply, gives your next of kin the means to get rid of said debts. Usually, unless something is a better fit, you can just go for the cheapest quote for this. When you die, you die. 
 
Critical illness cover 
 
This is a bit more likely to be claimed on, it’s a cover that pays out on diagnosis of an illness such as Cancer – Heart attack – Stroke – MS.  
 
Plus many other illnesses that can take away your ability to work or look after yourself. We usually recommend X multiples of your annual income, as this can give you the option to take some time off, or even go private and miss the NHS queues. You can cover all of your mortgage and loan debts too, but often this is outside budget due to the amount of cover. 
 
This often has lower payouts for the ‘more recoverable’ illnesses such as breast and testicular cancer, plus the majority of insurers will then allow you to keep your cover after a lower claim. 
 
What this allows is some pressure relief. You can set up enough of a payout to enable you to concentrate on recovery and less about paying the mortgage or keeping debts in check. 
 
A few lenders offer some fantastic services to compliment this too, with services that you can access as soon as you start your cover. Things like health checks, physio, 24/7 online doctor as well as things like nutrition experts. 
 
Highly recommended, even if you only have a small budget. Something is better than nothing when you get that ‘fade to gray’ diagnosis. 
 
Family cover 
 
Put simply, when you die, so does your income. 
 
This cover, known as Family Income Benefit, or FIB, means that your family can still receive an income when you are gone. A monthly payout until the term ends to help them with losing you. This can be used to pay the monthly bills and keep your family accustomed to the life they have always been used to. 
 
Whole of Life 
 
This is a life insurance as above, but it has no end date. Basically, you just keep paying until you die. This is usually used for either funeral cost planning or IHT planning. 
 
If you find out that your IHT is going to be £500k, then you can cover for that amount. Average age of death is about 81 years. So if you are 71 and looking to cover £500k, your monthly premium – as long as it’s less than £4166pm (which I would be surprised it if was!), then you would be spending less on monthly premiums than the IHT will be for your family when you go. 
 
I would expect a true premium would be anywhere from £500-£1500pm, but every cover is tailored to you, so should be checked into properly. 
 
Income protection 
 
Not strictly a life insurance, but an essential one that should be mentioned. 
 
Income Protection (IP), is a personal sick pay. Self employed people done have any, so setting up your own is paramount. If you can’t work, you don’t get paid – this would be terrifying. 
 
Even PAYE people still have an end date on their work related pay. Usually from 3 – 12 months. After that, it’s SSP. (around £99 per week – pretty much useless). BUT SSP only lasts for 28 weeks, after that, if they wanted to keep you, it would be out of their own pockets. Doubtful! 
 
This cover pays you a monthly income to allow you to keep the mortgage and bills paid. The payouts should be set up to last until retirement (golden ticket). 
 
IF you tripped, fell and broke your leg in a way that means you can’t do your job again, they would pay this monthly income until retirement! 
 
There are options for a short term payout and can be set up for 5,2 or 1 years if the budget is lower. 
 
If you would like a free review with no obligation, give me a call or email. 
 
Austyn Johnson 
austyn@ptfs.co.uk 
07500871209 
 
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