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Once you have a family of your own you worry about what will happen to them after your death. It is a fact of life, so face up to it and find out how life assurance works. You could actually save money if you choose the right one for your family, and that can't be bad.

Most insurance providers offer basic term insurance which pays your beneficiary if you die by a certain date, but if you outlive the 'deadline' there is no benefit! The length of the policy is tailored to suit your needs. This is the cheapest for of life insurance although premiums are usually higher for men as their expected life span is shorter than women's. As expected, premiums for smokers are higher still.

The details of term insurance vary. A level term policy pays out on death and the amount of benefit does not alter throughout the period. The policy ceases at the end of the term and has no remaining value. This type of policy is useful to cover loan or mortgage repayments, especially interest-only mortgages which do not reduce over time.

A decreasing term policy is where the death benefit reduces year by year and reaches zero at the end of the term. When purchasing a repayment mortgage where the capital value decreases over the term of the mortgage, this type of term insurance is often taken out and costs less than level term insurance.

Another option, which is usually about 10 per cent more expensive than level term, is convertible term insurance. This means that at the end of the term of your initial policy you must 'convert' it into a different type, for example an endowment or a whole-of-life policy.

Some insurance is not available if you are in poor health, but with this type you cannot legally be refused a new policy even if that is the case. However, your age and sex will determine the cost of the new premiums and they will inevitably be higher.

There are rules regarding conversion and you need to be aware that the sum assured when you convert has to be the same amount as on the original policy. Another point to note is that you are obliged to convert before your initial term ends. An option on a convertible term policy is a renewable term policy where again you are guaranteed a new policy regardless of any health issues.

Increasing term policies do what they say and increase the payout over the years, say by 5 to 10 per cent, which should protect you against inflation. Generally, at the age of 65 you are not allowed to increase the sum assured.

Spouses usually take out joint policies so that family income benefit payments start as soon as the first one dies. This is paid out regularly until the end of the term of the policy and can be a set amount or can provide an escalating income, depending on the arrangement you have made. The duration of these policies is usually written to provide financial support until the children have grown up.

Author : Michael challiner
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