Financial protection

Life insurance pays out a lump sum on death. With level term life insurance, the value of the payout remains the same throughout the term of the policy. With increasing term life insurance, the value of the payout increases in line with inflation; it could be useful if you want the payout to cover funeral costs or your family’s bills and expenses. Bear in mind that your premiums will also increase over time. Decreasing term life insurance is often used to protect a mortgage; the value of the payout reduces in line with the outstanding balance of a repayment mortgage.

Income protection pays out a regular income if you’re unable to work because of an accident or illness. You can choose between short-term cover, which might pay income over one to two years, or long-term cover, which typically runs until retirement or when the policy ends (whichever is sooner). You can also choose when you want the payout to start – in general, the longer the deferred period, the lower your premiums will be.

Critical illness cover provides you with a lump sum if you’re diagnosed with one of the critical illnesses covered by the policy. The lump sum could be used to help pay off your mortgage or other debts, or adapt living arrangements to your new circumstances.

Whole of life insurance provides a guaranteed lump sum on death and, as its name suggests, remains in force for your entire lifetime. It’s often used for estate planning. If you set up your policy in a trust, it should stay outside your estate for IHT purposes. When you die, the policy pays out to the trust, which then pays all or part of the IHT bill.