There are four main types of life insurance.
- Level term insurance pays out a lump sum if you die within a set time period. This lump sum amount was agreed when you were setting up the policy, and it does not change.
- Decreasing term insurance is often taken out with repayment mortgages. The amount you are covered for decreases in line with the amount of mortgage you owe.
- Endowment insurance pays out a lump sum if you die within a set time period. If you do not die within the term, it pays out at the end of the term. So this type of life insurance builds up an investment value.
- Whole life insurance builds up in value and pays out on death. It can be used as an investment, for protection, or both.
Many employers also offer life cover to employees. Cover is usually available to every employee up to a set limit, whatever their state of health. Speak to your HR department at work to find out more. Many employers offer a type of life insurance called ‘death-in-service benefit’. Death in service benefit guarantees a lump-sum payout if you die while working for that employer.
You can usually choose who you would want this payment to go to (your beneficiaries). However, sometimes death-in-service payouts go into a discretionary trust, which means you cannot choose exactly who will benefit.
If you consider giving up your work due to ill health, check with your employer what would happen to any life insurance cover they provide.
Over-50s plans are designed to pay a lump sum of money into your estate when you die. They’re mainly intended for anyone aged 50–85 who doesn’t already have a life insurance policy.
People with life insurance can still buy over-50s plans and may choose to if they are saving for a particular purpose (such as paying for a funeral) and want to keep this separate from their life insurance.
Getting money early from life insurance
- Some types of life insurance are investments and can be cashed in early. But the cash-in value may be low, especially in the early years of a policy.
- An alternative to cashing in a life insurance policy is to sell it through a specialist firm to someone else in return for cash immediately. The buyer takes over paying the premiums and receives the eventual payout from the policy. For tips about these options, contact our financial guides on 0808 808 00 00.
- Some life insurance policies include an extra benefit called ‘terminal illness benefit’. This means the insurer will pay out the full amount of the insurance cover immediately if you’re expected to live for less than 12 months. You keep the payout even if you live for longer. The money can be used for any purpose. You can check the life insurance policy to see whether terminal illness benefit is included.
If you cash in or sell your life insurance policy, it won’t pay out to your beneficiaries when you die. You may want to think about how they would manage financially before making a decision.
- For guidance about finding suitable life insurance, contact our financial guides on 0808 808 00 00.
- Contact your HR department to check whether you are included in a life insurance policy or if you can join one.
- Contact your mortgage provider to check whether you are covered by life insurance.