The key benefits of life insurance
- Life insurance payouts can help provide financial security for loved ones
- It can help reduce the disruption of losing a parent or partner
- It can help compensate for a loss of earnings for those you leave behind
- It can be put towards unpaid debts, such as a mortgage, that fall to loved ones
- Some kinds of policy are designed to contribute toward funeral costs
- Some add-ons like Critical Illness* can help towards lost earnings
- Most of all, it can give you peace of mind that your loved ones are looked after
We all have people we care about, and it’s comforting to know that we have people who care deeply about us. But how would they cope if we were no longer around? The death of someone close is going to come with its own difficult challenges, and it’s important that in a period of mourning and loss, life is able to continue as comfortably as possible. No longer being able to meet your financial commitments – such as mortgage repayments, rent, school fees and council tax – can mean that those left behind are severely impacted. That needn’t be the case.
Some people may start to consider life insurance as they are nearing the end of their working lives to provide a legacy for those they love, or at least ensure that the people closest to them don’t have financial worries.
Young people may also see the advantages of buying life insurance policies too. Whether they have started a family, bought a house, reached a milestone birthday or started to think more seriously about life beyond their thirties, many more young people are seeing the benefits of life insurance.
There are a number of excellent reasons why you might want to consider getting a policy too.
Peace of mind
Peace of mind is one major benefit of life insurance. While there are any number of personal reasons why someone might turn their mind to buying life insurance, they can broadly be summed-up under ‘peace of mind’, which is a huge advantage to have for some.
Term life insurance is an insurance policy of a specified length that pays out to your beneficiaries if you die within its lifespan. It enables you to create provision for those most important to you and leave a legacy once you’re gone. They may be left in a better financial situation, which can help with the repayment of loans or debts, to pay for your funeral, to help life as they know it continue or simply to allow them to enjoy your memory more easily.
All of these life insurance benefits might get you thinking about whether or not a policy could help you.
We have more financial concerns than we used to
The range of expenses is always growing. At one time, there were fewer: rent/mortgage, council tax, utilities, phone line and TV licence. But now, many of us have contracted payments to TV package providers, broadband providers, mobile phone companies and other subscription services.
That’s before factoring in things like owning a car. While it’s arguable that these are choices rather than obligations, very few of us would be able to live without them.
Naturally, we commit to these purchases because we don’t imagine that we will die. But if the worst should happen, would your loved ones have the advantage of being able to maintain these payments? One of the benefits of life insurance is that it could help your loved ones with these expenses.
Few of us have sufficient savings
The Mintel Report from 2018** found that only 25% of people without life insurance have savings of more than £10,000 and the Mintel Report from 2019*** shows that there are 7% of people with savings of more than £50,000.
In many situations, putting money aside can be very challenging, and the savings one has can quickly get spent on unplanned outgoings – both good and bad.
The benefit of a life insurance policy is that it can mitigate for a lack of savings after you die, even if it is something like over 50s life cover, which has lower premiums than term cover and a predictable pay-out that can help cover the cost of your funeral.
More detailed considerations
Many things can cause us to start thinking about our mortality and questioning whether or not we would benefit from buying life insurance, but there are also situations where it will be much more obvious.
Buying a house is one such event. It is likely to be the largest amount of money you will spend in your life, and if you have a repayment mortgage, you want to try to ensure that the people you love could continue to live in their home if you were to die.
If you start a family, you are suddenly confronted with the fact that there is a new person in your life who is utterly dependent on you. Naturally you will want to spend as long as possible with them, but in the event of the unexpected, it will bring you comfort to know that they are provided for.
Decreasing Term Life Cover
A decreasing term life policy is a good way to make sure that your mortgage repayments are met in the event of your death. Any gradually-reducing debt can be covered with a decreasing term policy. It keeps track with your repayment schedule, with pay-out levels decreasing in line with the diminishing size of your debt.
Level Term Life Cover
Level cover offers a cash lump sum if you die within its lifetime, which can be used to repay debts or simply as a way of helping life to carry on without your help.
Increasing Term Life Cover
Increasing cover has higher premiums that are increase each year, but the payout also rises to mitigate against the impact of inflation, making sure that its value is the same at the time of your death as it would be now..
Over 50s Life Cover
If you are thinking about your old age and don’t want your family to be troubled by the cost of your funeral, over 50s life cover means that you have the advantage of being able to contribute financially to the event.
Putting the proceeds of a life insurance pay-out into trust also means that it does not count towards your estate and, according to HMRC rules, is therefore no longer subject to inheritance tax. However, this is a complicated process that is very hard to undo, so seek independent financial advice if you want to pursue this course.
Know what you are leaving behind
Do you know what your loved ones would receive if you were to die? Very few of us do. Getting a life insurance policy, or re-examining the one you already have, can be a great way to take a good look at your finances and ensure you know exactly what your loved ones would receive in the worst case.
So whether you’re thinking about retirement or having your first child, it is always going to be a good time to act.
Find out if life insurance is worth it and what to expect when applying for life insurance with our articles and guides.
*A critical illness will need to meet your insurer's definition to qualify.
** source: Mintel Term Assurance Report June 2018
***source: Mintel Term Assurance Report June 2019