Why might I need life insurance?
Help with the mortgage
A popular reason to take out life insurance is so that you can help your loved ones pay the mortgage if you are no longer around. Without your income, mortgage repayments may be more difficult to manage, and life insurance can mitigate for this.
You could choose decreasing term life insurance, which adjusts to take into account the length and rate of your repayment mortgage and pays out less as your mortgage gets smaller. Alternatively, level term life insurance gives a one-off sum that can be used to leave an inheritance for loved ones. Level term life insurance is often used to help pay off interest-only mortgages or any outstanding debt or loan where only the interest is being paid down.
Starting a family
Having a child is a life-changing experience in many ways. Caring and providing for your children becomes your primary concern, but it is important to consider how their needs would be met or how your partner would cope financially with raising a family if you were suddenly no longer there. While this is an uncomfortable thought, life insurance is a simple way of providing further care.
It will also offer you and your family peace of mind to know that they are provided for. If you were to die, your family could benefit from knowing the pay out of a life policy could help them live in the same house, attend the same school or university course, or simply to be able to afford to maintain their way of life during a difficult time.
Paying off the funeral
You may want life insurance to pay off the cost of your funeral so your death doesn’t create financial difficulty for your loved ones. According to British Seniors Funeral Report 2021, between 2016-2021 the average cost of a funeral was around £5,631. Over 50s policies - as well as level and increasing term policies - can be used to contribute towards funeral payments.
Who benefits from life insurance?
Since no life insurance policy financially benefits the policy holder, one of the most important considerations when you take out a policy is whom you want your beneficiaries to be. Most commonly, the beneficiary will be your spouse, children or other dependants and your payout will go to them.
It is possible to take out a life insurance policy to pay out to someone outside of your family by completing a deed of assignment or by putting the policy into trust. Some insurers offer this option, whereas with others you may need to make the arrangements yourself. There are also circumstances whereby a policy in trust will be exempt from inheritance tax, however the conditions for this situation may be complicated and must be discussed with an independent financial advisor or solicitor.
Joint life insurance
Joint life insurance is a form of life cover which insures two people, this means the chosen amount of cover is paid out if the first person dies within the length of the policy. This type of life insurance policy is often taken out to cover a partner or spouse. Alternatively, you could pick a policy that pays out when both policy holders die (known as a joint life second death policy.)
It is important to fully understand the pros and cons of having a joint policy in place. For example, a pro of this type of policy is that it is often cheaper than two single life insurance policies, however, a con may be that the provider usually only pays out once, leaving the surviving partner uninsured once a claim has been made. Also in the unfortunate event that the relationship doesn't work out, the insurance provider may not offer the option to transfer the policy into two seperate single polcies. Remember, if you have to take out a policy later your age and health at this stage will be reassessed and usually mean premiums will be likely to be higher.
You could also arrange for both lives to be covered by having two single policies which would pay out individually.
How much does it cost?
How much life insurance costs will depend on your individual circumstances - how much cover you'll need, the type of policy, your age and your lifestyle.
There are two ways to work out how much you would like to pay for life insurance. You can decide how much monthly premium you would like to pay and, based on your personal circumstances, see how much cover that will provide for you.
Alternatively, you can decide on a lump sum that you consider to meet your needs and see how much that will cost you in premiums each month. The higher the monthly premium you pay, the higher the payout for your loved ones when you die. Do bear in mind that there are other considerations that will affect how much cover you are eligible for.
Life insurance costs more the older you get
As you advance in years, there is more that can go wrong. Similarly, smokers and people who lead poor lifestyles - or who have pre-existing medical conditions - may find life insurance more expensive. Indeed, these people may struggle to get cover. If you fall into this category, then doing what you can to improve your health and lifestyle may have an impact on your ability to get cover or the size of your premiums.
Another option is life insurance with critical illness cover. Should you suffer from a critical illness like cancer, a heart attack or a stroke, critical illness cover is designed to help you manage bills, maintain your family’s lifestyle or, if needed, adapt your home. Please check your provider’s policy for a full list of illnesses covered.
Is a life policy right for you?
We hope you have the information you need to decide what's right for you. If our guide has shown you the importance of life insurance, speak to an advisor and ask for help if you require further information.
We hope you have the information you need to decide if life insurance is right for you. If you need more information, read our what to expect when applying for life insurance article.