Life Insurance

Life insurance - Protecting your family and dependents
Life insurance is about providing some financial security for people who depend on you if you died. (So if you dont have a partner, spouse or civil partner, children, or other dependents, you may not need life cover.)

To make sure you buy the right amount of cover, with the right terms and conditions, you should consider getting some advice. The adviser assesses what your family would need, and shops around for the cover that suits you best.

Always answer questions as best you can and disclose any existing medical conditions when asked. If you dont give the full facts, you could invalidate your policy and the insurance company wont pay out. There are two main types of life insurance, term insurance and whole of life insurance.

Term assurance pays out only if you die within a certain term, and whole of life insurance pays out whenever you die. Some whole of life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.

If you want investments, consider the full range of products (not just life insurance) which might meet your circumstances and needs.

Term insurance
This is the simplest and cheapest type of life insurance, and is known as term insurance because you choose how long youre covered for, say, 10, 15, or 20 years (the term).

Term insurance only pays out if you die within the term you have agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out if either of you die during the term.

Things to look out for - What type of policy do you want? For example:

• family income benefit (a policy which pays out income rather than a lump sum),
• increasing policy (where cover and premium rise over the years),
• decreasing policy (where cover and premium fall over the years),
• renewable policies (which let you extend the original term).

Check for exclusions - in other words, when the policy will not pay out. For example, most do not cover death due to alcohol or drug abuse. You might not be covered while taking part in risky sports. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.

Premiums shown are usually fixed for the whole term. There are also contracts where premiums are reviewable, after a certain period, usually five years.

• How flexible is the contract?
• Can you reduce or increase cover easily as your circumstances change?
• Are there extra charges for doing this?
• Does cover stop immediately if you miss a payment or is there a period of grace?

By paying extra, you can usually include a waiver of premium. It pays the premiums if you cant work because of a long-term illness so that your cover is not interrupted.

If you want to change insurer, check the level of premiums for the new contract before switching (premiums may have gone up because of older age or because you have developed medical conditions). Also check the new level of cover compared to the previous one. Different benefits may be available, and different exclusions may be applied for example you may not be covered for medical conditions that have developed before the switch even if these were covered under the previous contract. If you do decide to change, make sure you do not cancel your original cover until you are fully covered by the new contract.

The policy can be set up under trust. This means that in the event of death, proceeds of the policy are paid directly to dependents of your choice. Provided a trust is set up properly, there may be benefits to doing this. However, using a trust may not be suitable for everyone and because of the complexities we recommend you seek financial and legal advice.

What does it cost?
This depends on several factors, such as the amount of cover you want and the length of the term. Naturally, its also based on the likelihood of your insurer having to pay out: if youre a smoker and do a dangerous job, youll pay more than a non-smoking office worker. Term life cover also costs more for men because, on average, they dont live as long. Always compare whats covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.

Debt FC's experienced debt consolidation team in Scotland will discuss your options and provide you with free debt help and debt advice on how to deal with your debt problems. We are based in Livingston, West Lothian, Scotland but help people throughout the UK

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