The main purpose of life insurance is to provide a benefit if you die during the term of the policy. Some life insurance policies just provide protection and others are primarily intended to be investments. We focus specifically on insurance for protection. For example, with a term policy a death benefit is payable during the term only and if the policy matures with no claim being made then there will be no surrender value.

Note: life assurance is a term traditionally used but life insurance is also acceptable and is increasingly being adopted.

See Fig 1

Level term insurance:  The sum assured is fixed throughout the term of the policy paying an agreed lump sum if you die during the policy term.
When: Ideal wherever a liability or protection need exists that will not reduce over time such as an interest only mortgage for example.
Pros:  Pays a fixed lump sum and represents better long term value for money than decreasing term insurance as your monthly premium always buys a fixed amount of cover.
Cons: More expensive than decreasing term insurance and over a period of time the buying power of the sum assured can be eroded by the effects of inflation.

See Fig 2

Increasing term life insurance: This is more of an add-on option rather than a class of term insurance policy in its own right. This type of policy allows you to increase your sum assured either on a fixed basis such as 5% compound each year or in line with an index such as the RPI (retail price index) or national average earnings index (NAEI.)
When: Wherever you require the sum assured to offer the same buying power in the future such as replacing income for example.
Pros: Protects against the effects of inflation and ensures the sum assured rises in line with the cost of living and provides adequate long term protection.
Cons: Some insurers charge for this type of cover at outset and all will increase your premiums each time you increase the sum assured, some by a fixed amount, some by an unspecified amount.

See Fig 3

Decreasing term or mortgage linked insurance: The sum assured falls each year in a predetermined way, usually to zero by the end of the term.  This type of policy can also be referred to as Mortgage Protection.
When:  Wherever a liability or protection need reduces over time such as a repayment mortgage.
Pros: Less expensive than other types of life insurance policies.
Cons: Although less expensive at outset, it doesn’t represent as good long term value for money, as although your cover reduces, your premiums do not. Your sum assured may decrease faster than your mortgage leaving a shortfall in cover.
Family Income benefit: Another form of decreasing insurance providing a monthly or annual sum/income until the end of the policy term.
When: Where there is a need to provide or replace an income.
Pros: Less expensive than level term cover and provides an income rather than a lump sum.
Cons: Sum assured is effectively decreasing and provides limited cover towards the end of the policy term.

Deciding how much cover you will need in the event of death can be a tricky and daunting process. Generally speaking, the higher the sum assured then the higher the premium. When looking at the cost of a life insurance policy you are able to choose between a premium driven (Choose the price you want to pay and the insurer will propose a sum for that price) Quote and a lump sum quote.
Insurance companies will leave it to an individual to decide on the figure they think is appropriate which is another good reason to seek good advice. We do not expect our clients to be insurance experts, which is why all of our advisors are qualified to a level above the expectations of the industry.
One quick way of calculating a lump sum would be to look at your gross salary and multiply it by the number of years your family would be dependent on your income. Some companies suggest between 10 and 20 years but again this is an individual calculation made by advisors when looking at your financial situation.
Another way to consider a lump sum would be to calculate your cost of living, mortgages, bills, food, rent, loans, clothing and travel etc. By adding these costs together then subtracting any assets that you have, it will give you a figure that would cover immediate costs. If you can’t afford to insure both lives then the higher wage earner should be covered.

Choosing the right insurer for your individual circumstances is the key to keeping the cost of your cover as low as possible. Any quotes you receive on-line, from any insurer, are known as screen prices and offered on basic information and are subject to change on application.
Medical health, family history, occupations, past times and lifestyle can all influence the cost of your cover and often do. No one insurer is best suited for all circumstances and choosing the insurer that will give you the best real price is essential.
Covering individual considerations such as a repaying a mortgage and protecting children separately with a combination of policy types for different amounts and different terms is often more cost effective than blanket insuring with one policy.
For advice on how best to approach your insurance speak to one of our advisors and they can almost always show you a way to approach your insurance in a way that will reduce your costs and probably increase your cover.