Child holding up a red balloon which the father is inflating in the living room Child holding up a red balloon which the father is inflating in the living room July 22, 2019

As you get older, you begin to think about things you wouldn't have considered in your youth. Life insurance is one of these things.

Family and loved ones become your number one priority. And, although you don’t always want to think about it, it's reassuring to know the people you care about have the financial support they need if you were to die.

That's where life insurance comes in. It can provide a cash sum payout if you were to die or be diagnosed with a terminal illness during the length of your policy.

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Why do I need life insurance?

If your partner or children rely on your income for costs such as a mortgage, you'll want to be sure they can maintain their standard of living even if you were to pass away.

A life insurance policy could help pay for a child’s education and extracurricular activities or help clear any outstanding mortgage debt that could have otherwise been difficult to afford.

There are other factors to consider, such as funeral expenses. Many policies offer a payment that could be used to help cover this cost. Funerals can be more expensive than you might think, as explained in this article.

What are the different types of life insurance?

Level term life insurance

This is suitable if you want to leave your loved ones a set amount of money should you die or be diagnosed with a terminal illness during the length of the policy.

When you buy the policy, you decide the amount of insurance and how long you want the insurance to last for.

The money could be used to help towards clearing debts, paying for a child's education or cover the general costs of living. The payout remains fixed throughout the length of the policy unless you decide to change your terms.

Decreasing term life insurance

This is designed to help clear what’s owed on a repayment mortgage if you were to die or be diagnosed with a terminal illness during the length of the policy.

When you buy the policy, you decide the amount of insurance and how long you want to be insured for. This works in the same way as the outstanding amount on a repayment mortgage at a predetermined rate.

A payout could make the difference between your family being able to stay in their home or having to move. This depends on how much you're insured for, though.

Over 50s life insurance

While level and decreasing term life insurance policies are taken out for a set number of years, over 50s life insurance lasts for the rest of your life.

When you die, an over 50s life insurance payout could contribute towards your funeral costs, or you could gift the money to your family.

Critical illness

Most providers offer critical illness policies, either as an addition to a life insurance policy or as a separate policy.

This will pay out if you're diagnosed with a specified critical illness that may leave you unable to work to support your family. This is different from a terminal illness, which pays your life insurance early if you have less than 12 months to live.

How much will it cost me?

Usually, the earlier in life you buy a policy, the cheaper your monthly payments will be when taking the same amount of cover for the same policy length.

Once you've agreed to a contract, depending on the policy you've taken, your monthly payments won't change unless you change the policy. Therefore, younger people will enjoy cheaper payments for life, as there's less risk. The cost of delay can be expensive, so it could benefit you to buy a policy sooner rather than later.

The cost itself will vary from person to person. It takes into account a number of factors, including your age, lifestyle, health and how much your family would be paid in the event of your death.

A decreasing term policy tends to be cheaper than level term.

What isn't covered?

Life insurance only pays out in the event of death or the diagnosis of a terminal illness. Therefore, if you're unable to work because of a severe illness or disability, you won't be paid although Critical illness insurance could pay out for specified conditions.

Providers tend to exclude paying out on an insurance policy if the cause of death is suicide within the first 12 months of taking out the policy. And people who take part in dangerous sports may have to pay more for their insurance.

Life insurance isn't a savings or investment product and has no cash value unless a valid claim is made.

Make sure you know the full terms and conditions of your contract.