Many people all over the world have dependents, whether this is children or a partner. Throughout your life most people will somehow become in debt, whether it be through having a mortgage or obtaining a loan to buy a car. This is generally okay when you are working and paying these debts back monthly but what happens if you become seriously ill and cannot work or you die.

In order to protect your family against your death or disability you should seriously think about obtaining life insurance. If you do not then your family will be held responsible for repaying your debts. If they do not then they would have their possessions re-possessed or even be evicted from their home. No-one would want this to happen to their loved ones, so the best way to ensure your dependents have enough money to protect them would be to obtain life insurance.

There are three main types of life insurance policies, Term insurance, Whole life insurance and Endowment insurance.

Term insurance policies are taken out as a means of insuring against the possibility of death within a specific period. The premiums payable are solely for the purpose of providing life cover as a form of protection. Term insurance is the most popular form of life insurance as it provides the cheapest premiums and is particularly useful in connection with mortgage repayments. There are a number of different term insurance policies to choose from.

Level Term Insurance – where you have fixed premiums for a number of years and there is a full payout on claim at any point during the term.

Increasing Term Insurance - the cover increases every year without the need for a medical.

Decreasing Term Insurance – when the payout reduces over the cover period at a flat fixed rate each year.

Mortgage Protection Insurance - life insurance where the lump sum reduces in line with the outstanding mortgage balance over time.

Renewable Term Insurance – this is a short term policy and is therefore cheaper initially. It is commonly used for protecting Company Directors. It can also be renewed without any further medical evidence.

Family Income Benefit Insurance - instead of paying out a lump sum, this type of cover provides a tax-free annual income until the end of the term specified at outset.

Before taking out a life insurance policy there are a number of factors to consider.

How much cover you want - this would depend on how many dependents you have or if you are the sole carer in which case you would need to supply funds for another carer. Generally speaking the figure you supply should be around two thirds of your salary or about £20000 for a carer per year.

How long you want the cover - If you have children, then realistically you will need to provide enough money to keep them until they are about 20 years old, when they will be able to supply money for themselves. If you have a partner then you should really supply enough funds for them until they are about 60 years old.

Other factors that need to be considered are your age, your gender, your occupation and your health and smoking habits. The older, unhealthier you are the higher the premiums will be.

The cheapest life insurance policies would be the very basic ones. These would be the level term insurance which are based on specific periods and are therefore, very unlikely to need to pay out to the insured. There are additions which you could add to your policy which would obviously increase the premiums but also supply you with better cover. These additions would be critical illness cover, income protection and mortgage cover.

Critical illness cover can be obtained as an extra with your life insurance policy, although some companies will combine the two together to reduce your premiums. This insures you if you have been diagnosed with a serious illness such as cancer, a heart attack or a stroke. There are many other illnesses covered, those which vary with each insurance company. This cover pays out a cash lump sum if you are diagnosed with an illness listed within the policy, however you must survive for 28 days after being diagnosed. This sum of money could pay for a number of things like nursing care, home-help, adapting your house to accommodate a disability or pay off your mortgage.

Other factors which could higher your premiums are your health. If you are a smoker or a heavy drinker then your premiums would be higher. Basically if you want the cheapest life insurance, then you should be young, healthy, a non smoker/drinker and obtain the level term insurance.

Further Information