It is a life insurance policy that gives you the option to increase your payout later in life.
Increasing your payout at a later date is called guaranteed insurability. If you opt to use it, you will not need to provide your medical information again.
When can you increase your cover?
You can only increase your payout at specific times, which can differ depending on the insurer you choose.
Each insurer has a list of life events when you can increase your payout, such as:
Changing job, getting a promotion or retiring
Getting married or divorced
Becoming a parent
Receiving a cash gift or inheritance
Most insurers only let you change your payout a set number of times, and limit the amount you can increase your payout to.
Warning: Increasing your payout will also increase your monthly premiums.
What policies does it come with?
Depending on the insurer, you could add guaranteed insurability to the following types of life insurance:
Level term: You choose a set payout and pay premiums for a fixed term.
Decreasing term: You choose a payout which reduces each month until the end of a fixed term.
Whole of life: You choose a set payout which pays out whenever you die, with no fixed term.
What is a life insurance policy?
A life insurance policy can pay out a cash lump sum if you were to die during the term of your policy.
You can apply for most life insurance policies as soon as you turn 18, but some providers may have more strict age restrictions.
When it comes to comparing life insurance policies, you will need to consider:
How much a policy will pay out
How long the policy term will last for
Who gets the payout if you die during the term
Who can claim?
Anyone can make a claim on a life insurance policy, but making a claim does not make you entitled to the payout. To be entitled to the payout, you would need to be named on the policy as a beneficiary.
Usually, it’s the people closest to the person who has died who deal with any financial matters. If there are no surviving family members, it might be a close friend who starts the claim.
If you need to start a claim, find out which insurance company holds the life insurance policy, then call them.
Life insurance companies do not generally outline a timescale, meaning you can start a claim after a few weeks or even longer if you need the time.
When you call to make a claim, the insurer will usually have trained staff to deal with your situation sympathetically, making it easier to start a claim soon after the death.
What kind of payout do you want?
There are two types of payout, depending on the type of policy you choose:
A lump sum: This could help pay off your mortgage, or give the ones you leave behind a pot of money to live off.
An income: This could help your family pay their monthly bills, e.g. mortgage repayments or rent. However, the income usually stops at the end of the policy's term.
You only get a lump sum payment with a whole of life or an over 50s life insurance policy, but you could find both options with a term life insurance policy.
Which payout is best?
The best life insurance policy for you depends on your financial situation, your family and when you die.
For example, if you die a few months before your policy ends, an income is only paid for the remaining months on the policy. If you choose a lump sum payout, your loved ones will get the entire amount in one.
If you die early on during the policy, an income will pay out for the remaining years, giving support to your family. However, if you choose a lump sum, they get the entire payout as one payment, potentially offering them more in return for your premiums.