Life Insurance explained
What is Life Insurance?
Think of Life Insurance as a safety net for your loved ones which ensures they're financially protected if something happens to you. You might want to consider life insurance if you have family members who depend on your income, or you have a mortgage or other debts. It can also be used to cover your funeral expenses, or allow you to leave money to your children or grandchildren.
Life Insurance is a contract between you and an insurance company where you agree to pay regular premiums, and in return, the insurance company promises to pay a sum of money to your chosen beneficiaries (typically your family) when you pass away. And we know that everyone's circumstances are different, so it's important to take out the policy that's right for you.
Types of Life Insurance
Term life
This is a bit like renting insurance for a specific period (20 or 30 years for example) - Should you pass away at any point during that period, a sum of money is paid to your chosen beneficiaries. One of the most common life insurance policies is called a 'Decreasing Term' policy and this does exactly what it says on the tin, the sum of money reduces each year of the covered period, generally in line with your mortgage, so that the remaining balance due on your mortgage can be paid off by your beneficiaries. Alternatively, you could choose a 'Level Term' policy, where you'd agree a set amount that would be paid out should you pass away during the cover period. Both Decreasing and Level Term policies expire at the end of the cover period.
Whole of life
If you don't like the idea of only having cover for a set period of time then you could take out a 'Whole Life' policy where you pay regular premiums, usually monthly or annually, and in return, your policy guarantees a payout to your beneficiaries when you pass away. Unlike the two term insurance options we looked at above, which both expire after the cover period, Whole Life insurance never expires as long as you keep paying the premiums.
Over 50's
A type of Life Insurance specifically designed for, you guessed it, people aged 50 and older. One of the main reasons they're popular is guaranteed acceptance with most providers - you can't be turned down due to health issues, and there are no medical exams or health questions. This makes it particularly appealing if you're struggling to get standard life insurance (like the options mentioned above) due to health conditions. The policy works by paying a fixed monthly premium until either you pass away or reach a certain age, and when you pass away your beneficiaries receive a fixed lump sum payment. It's important to note that the payouts are often smaller than a Term Life or Whole Life policy and there's usually a waiting period, also known as 'deferment', of typically two years. This means that if you pass away during the first two years, the payout will be less than the originally requested cover amount
How much does it cost?
Like all insurance policies, it depends on several factors:
- Your age
- Health status and medical history
- Amount of cover you'd like
- Type of policy you choose
- What you do for a living
- Whether you smoke & drink alcohol... and how much!