Life insurance basics

Life insurance is designed to help your partner and family cope financially when you die. The amount of cover you need varies depending on a number of factors, such as if you have family, financial commitments, a mortgage or whether you rent. So it’s important to regularly review your cover, in case any of these change.

You have flexibility on the amount and type of cover you need and how long you’ll need it for, so you’ll need to think about this before you purchase your life insurance. When thinking about how much cover you’ll need, you may want to clear your outstanding debts, such as paying off your mortgage or any larger loans, and to make sure there is enough to provide for your family after you’ve died. You can also consider leaving money for your family to cover more than the day-to-day costs. 

You’ll need to work out how long you’ll need cover for. Depending on your circumstances, you can select either whole of life or term assurance. The difference is that term assurance covers you for a set period of time, whereas whole of life cover will cover you until you die. Your insurance company or financial adviser will be able to help assess what’s best for you. 

You can also choose between level or decreasing cover. Level cover is when the amount of cover you choose stays the same throughout the length of your policy. Decreasing cover is most commonly taken out when you have a repayment mortgage. The amount of cover decreases every month, in the same way that a repayment mortgage decreases, down to zero at the end of your chosen term. 

Another option is to take out critical illness cover which can pay out if you get a serious illness, such as a stroke, heart attack or certain types of cancer. But it’s worth checking what’s covered when you take out your policy, as different insurance companies may cover different conditions.

For more information, visit the Scottish Widows website (www.scottishwidows.co.uk) or speak to a financial adviser.

When you take out life insurance, it can either last for the rest of your life – known as ‘whole of life assurance’ – or for a fixed term period of time – known as ‘term assurance’. There are advantages and disadvantages to both, it really depends on your personal circumstances.

Term assurance is the most common type of life insurance and covers you for a set period of time. You can select how long you want this to last and it is typically used to cover loans (such as a mortgage), to protect your partner or family’s lifestyle, and to help provide for them after your death. 

If you die during the term of your policy, your family and dependants will receive a pay-out. But if you are still alive at the end of your term, it will end and you’ll get nothing back. It is also worth noting that your policy has no cash-in value throughout your policy term. 

Term assurance can also be taken on a level basis or a decreasing basis. A level basis means the cover amount stays the same throughout the term of your insurance policy, whether this is in the first or the twentieth year. 

With a decreasing basis your cover amount will reduce gradually over the length of your policy, reducing to zero at the end of your chosen term, similar to how a repayment mortgage works. Decreasing cover is usually cheaper, but you should consider what works best for you and your circumstances.

Some providers also offer ‘whole of life assurance’, sometimes known as ‘over 50s insurance’. Your insurance company can help you work out what is best for you. This cover lasts for the whole of your life, with you paying a premium every month and the policy paying out to your family on your death, whenever that may be. You could take this type of cover to pay for funeral costs, to help with inheritance tax planning or leave extra funds for your family. As there is a guaranteed pay-out, this can give you complete peace of mind.

To find out what level of cover works best for you, Scottish Widows can help. Visit their website (www.scottishwidows.co.uk) or speak to a financial adviser for more information.

Unfortunately, serious illness has a huge impact in the UK, with almost 990 cancer cases diagnosed every day, and someone suffering from a stroke around every three and a half minutes. It’s not something we like to think about, but how would you and your family cope if you could no longer work, or had to take time off to recover from a serious illness?

Critical illness cover is there to provide you and your family with financial security if you do suffer from a serious illness and need to give up work or take time off to recover. Critical illness cover normally includes a number of illnesses, including heart attacks, strokes and certain types of cancer. You’ll be able to get a full breakdown of the cover from an insurance company and it’s very important that you’re clear on what conditions your policy does and doesn’t cover.  

If you do suffer one of the critical illnesses covered in your policy, your insurer will pay out your cover amount as a tax-free lump sum. This can help you cope financially and meet the cost of bills, such as mortgage payments and day-to-day living costs.   

With advances in medicine, more people are surviving a serious illness. But it can still have a major effect on your ability to work, so cover can provide you and your family with financial support while you focus on what really matters – getting better. Some policies may also pay out a smaller amount for less severe additional conditions and provide cover if your child suffers a critical illness, but you’ll need to check this with your insurer. 

Scottish Widows can help ensure you have the cover in place to suit your needs. For more information, visit the Scottish Widows website (www.scottishwidows.co.uk) or speak to a financial adviser.