Understand what life insurance is and why you might need it
If you haven’t thought about life insurance yet, the best time to start is now. Our guide explains what life insurance is, and gives you all the information you need to get going
Understanding life insurance
Life insurance is often a topic that many of us prefer to avoid, but it's an essential consideration for anyone who wants to ensure their family's financial security. Life insurance is a financial safety net for your loved ones in the event of your passing. It's a promise that they will be taken care of, even when you're no longer around to do so yourself.
If you have dependents who rely on your income, life insurance can provide the necessary funds to meet financial commitments such as mortgage payments, daily living expenses or even funeral costs. The loss of a loved one is an emotional and difficult time, and the last thing anyone wants is for their family to face financial worries during such a period.
The mechanics of life insurance
In essence, how life insurance works is similar to other insurance policies. You pay a monthly premium to your insurer to keep your policy active. If you die during the policy term, your insurance company will pay a sum to your beneficiaries. This sum, often referred to as the 'lump sum,' is a crucial factor to consider when purchasing a policy. It should be substantial enough to cover debts and provide for your loved ones' needs, potentially for several years.
The cost of your life insurance premium is determined by several factors, including the type of coverage, the amount of the payout, your age, health, and lifestyle habits. To determine how much coverage you need, you can use MoneySuperMarket’s life insurance calculator. This tool can help you estimate the amount of money your family would need in your absence.
When the policyholder passes away, the insurer pays out the agreed lump sum to the named beneficiary. This can be in a single payment or regular installments, and with some policies, the amount may vary depending on when the death occurs.
Different types of life insurance
There are several types of life insurance available, but here are the most common ones:
This type of insurance lasts for a predetermined number of years. If you die within this term, your loved ones receive a lump sum. With level term insurance, the payout amount remains the same regardless of how long you've been paying into the policy.
In decreasing term cover, the payout amount decreases over time. This is typically a cheaper option and is often used to cover a repayment mortgage. As you pay off more of your mortgage, your family will need less to settle the debt if you die.
Whole of life
Unlike term cover, whole life insurance lasts for your entire life. These policies are more expensive, but they usually guarantee coverage without requiring a medical check-up.
Joint life insurance
Joint insurance covers two people under one policy. If one person dies, the other receives the lump sum. It can be level or decreasing term, and it's often cheaper than insuring two people separately.
Do I need life insurance?
Life insurance isn't a legal requirement, but it may be necessary if you have financial dependents. If you're single and don't have a mortgage, life insurance may not be necessary. However, if your death could cause financial hardship for others, you should consider getting insured. This way, you can ensure they receive the support they need, no matter what happens.
Who can get life insurance?
Generally, anyone can get life insurance, but availability may vary by age and risk factors. Some insurers set age limits, but don't let that deter you. Life insurance policies for younger people are usually cheaper and can last for many years. Therefore, the best time to get insured is now. For those aged 50 or above, there are specialist over 50s life insurance policies available. These are typically whole of life cover, which is more expensive because it's guaranteed to pay out at some point. Some providers even offer life insurance to those over 80 who need it.
Regardless of your age, you can find the life insurance policy that suits your needs. Provide us with a few details, and we'll find the best policy for you.
Searching for life insurance deals?
Life insurance is about protecting your loved ones and providing them with security when you're not there. It's about peace of mind, knowing that they will be taken care of financially. When looking for life insurance deals, remember that the cheapest option may not always offer the best coverage. It's worth considering paying a little more to ensure that your family has adequate support.
Life insurance is a selfless act of love, ensuring that your family's future is secure. It's a decision that should be made with care and consideration. With the right policy in place, you can rest easy knowing that your loved ones will be provided for, come what may.