Life insurance is a way to help protect your loved ones financially, if you were to die during the term of a policy.
A good policy will also help your family deal with everyday money worries such as household bills and childcare costs. They will also be covered for mortgage repayments.
Many people don’t like to think about this type of insurance, as it means thinking about the inevitable and a lot of the time it sounds more complicated than it really is.
Why do I need life insurance?
Life insurance is important for people with children, or a partner who relies on their income because of costs, such as a joint mortgage. If you’re in that situation, a life insurance policy could help financially protect your loved ones if you were to die.
There are also other factors to consider, such as funeral expenses, and many policies offer a payment that could be used to help cover this cost. Funerals can be more expensive than you probably realise, as explained in this handy infographic.
What are the different types of life insurance?
- Level Term Life Insurance protects your family financially if you die during the term. The amount you receive remains fixed throughout the length of the policy. That is, unless you decide to change your terms.
- Decreasing Term Life Insurance helps pay off a capital and interest mortgage. If you die during the term of your policy, the policy is designed so that your repayment mortgage can be repaid. Your loved ones may not have to move home or struggle to make ends meet after you’re gone. This does depend on the amount of cover taken, though.
- Over 50s Life Insurance is usually for people aged 50 to 80. With this cover you can help contribute towards your funeral costs, or use the money as a gift for your grandchildren.
Most providers also offer the option to add critical illness cover for an extra cost when you take out a policy. This will pay out if you’re diagnosed with a specified critical illness that means you can’t work to support your family.
What does life insurance cover?
Put simply, life insurance will pay on death. When opening a policy, you’ll choose how much you want to be covered for and the length of the policy. This will then be calculated as a monthly premium.
In most cases, depending on the cover you choose, it may pay off an existing mortgage and/or any outstanding debts in your name. There’s also the option for your family to include an additional lump sum. As mentioned, some policies will also provide money to pay for your funeral.
How much will it cost me?
Usually, the earlier you buy a policy, the cheaper it’ll be. Once you’ve agreed to a contract, depending on the policy you’ve taken, your monthly premiums may not 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 be of benefit to buy a policy sooner rather than later.
Because of this, life insurance can be excellent value for money.
The cost itself will vary from person to person. It takes into account a number of factors, including how much your family would be paid in the event of death. Your age and lifestyle will also be considered.
What isn’t covered?
Life insurance only pays out in the event of death. Therefore, if you’re unable to work because of a severe illness or disability, you won’t be paid.
There is usually only one exclusion for life insurance - death by suicide in the first 12 months may not be covered. Those who take part in dangerous sports may also pay a higher premium for cover.
It’s important to note though, there are insurance policies available for critical illness cover or permanent disability. Make sure you know the full terms and conditions of your contract.
What is the difference between life insurance and life assurance?
The answer is pretty simple – there isn’t a practical difference, and the words are often used interchangeably these days.