So what is life insurance? Do I really need Life Insurance? Two of the questions I get asked the most!
In this article you will learn what Life Insurance is, how much cover you might need and how long you should have a policy for.
So, what is Life Insurance?
Put simply, if you die, your insurance company will pay your family money.
All you need to do is decide how much you want to be insured for and how long you want to be covered.
Most Life Insurance policies in the UK will cover you from day one of the policy starting, 24/7 and anywhere around the world.
Which is pretty awesome.
But there’s gotta be a catch, right?
Well, not really.
What Isn’t Covered By Life Insurance?
Typically, the only exclusion that insurance companies won’t pay out for is suicide in the first 12 months of your policy….that’s it.
Once you’re insured, you’ll pay your premium via a monthly direct debit.
So far, so simple.
Why Do You Need Life Insurance?
1.If You Are A Homeowner:
A Life Insurance payout could allow your partner or family to pay off the mortgage after your death.
2. If You Have Children:
A Life Insurance payout could provide for them whilst they’re growing up.
3.To Cover Funeral Costs:
A Life Insurance policy could provide your family with cash to pay for a funeral.
4. To Leave A Gift:
A policy could provide your surviving family with an inheritance when you die.
Think of this as the last gift you will ever give them.
All good, valid reasons, I’m sure you agree.
But…
How Much Life Insurance Cover Should You Take Out And How Long For?
Firstly, there is no right or wrong answer, so don’t stress about this part.
Life Insurance policies in the UK are flexible, so you can chop and change them free of charge throughout your life as you need to.
Great news if your circumstances change.
As a guide for you, pick the top 3 things that worry you the most and cover them.
For example:
1.Your Mortgage:
How much is owed on your mortgage and how long do you have left until it’s paid off?
You may also want to consider what type of mortgage you have.
Is it one where you’re only paying the interest and it’s not coming down (Interest only)?
Or one where you’re paying it all back and the house will be yours at the end? (Capital and Repayment)
2.Your Children:
Consider how many children you have and how old they are.
The average cost of raising a child to 18 in the UK is between £75k to £100k.
It’s also a good idea to make the policy at least run until your youngest child is 18 years old.
The longer the better in my opinion, but at a minimum this is fine.
3.Your Regular Outgoings:
I’m not just talking about your rent, your food or utility bills!
I’m also talking about the cost of the things you enjoy as a family.
This can include taking them to football, dance lessons, how much you save to go on holidays, birthdays and Christmas etc.
The Formula I Use Is As Follows:
Total monthly expenses (utilities, petrol, food, phones, etc) plus a £200-400 monthly buffer for fun things that you currently already enjoy.
You can have your Life Insurance policy pay your family a monthly income of this exact figure if you pass away until a point where they won’t need it.
For example, until your children have all grown up and moved out.
4.Leaving A Gift:
If your main concern is just something to leave the family, the cover may depend more on what you can afford to pay in premiums.
Give us a call, we can run a FREE price driven quote for you.
5.Funeral Cover:
Personally I think a £10,000 Life Insurance policy would be fine here.
This covers the costs now and possible inflation in the future.
Do consider the length though.
You can choose to have it last to a certain age, say 90 or a ‘Whole Of Life’ policy which has no expiry date (well, the day you die).
The difference between the two? Price!
No prize for guessing which option is cheaper.
What Are The Different Types Of Life Insurance?
1.Level Term:
This simply means the amount you are insured for, e.g. £100k, stays fixed at this amount for the length of your policy.
For example 20 years.
As explained above, choosing the term/length of your policy depends on why you want the cover.
Remember though, the shorter the term, the lower the price and longer the term, higher the price.
This is the type of policy you would want for interest only mortgages, funeral cover, leaving money to your children or family etc.
2.Decreasing Term:
Let’s use the example of £100k again over the same term – 20 years.
Instead of the money being fixed, it decreases every year until it’s worth £0.
Why would you choose this type of policy??
Well, you could use this type of policy for a Capital and Repayment Mortgage.
Why?
It’s cheaper than a Level Term policy mentioned above.
3.Income Plan:
This insurance pays your family an income every month if you pass away.
This is a good option for families who may spend all the money quickly if they got it all in one go.
This type of policy could be used to cover your bills with the buffer like I explained above.
4.Whole Of Life:
This one’s easy – the policy stays in place until you die and guarantees to pay out a cash lump sum.
What Happens To Term Life Insurance If You Don’t Die?
As you can see above, a term policy only covers you for a specific amount of time.
If the term ends and you’re still alive, the policy simply ends and you don’t get anything out of it.
To find out about term policies in a bit more depth follow this link: https://www.moneysupermarket.com/life-insurance/policy-types/
How Long Will It Take For The Insurance Company To Pay Me?
Firstly, your family will need to provide proof you are dead in the form of your Death Certificate in order to make a claim.
Once this has been received, your family could expect to be paid around 30 days later.
Which Factors Affect Your Life Insurance Premiums?
1.The amount of cash you want to be insured for.
2.How long you want to be insured for
3.Your Age
4.Your health
5. Your lifestyle
6.Your family medical history
7.Hazardous jobs and hobbies might also affect the size of your premiums.
If you’re a pilot or enjoy mountain climbing, then you may see your prices go up!
Read our article ‘How Much Does Life Insurance Cost?’ to get an even better understanding of this type of insurance.
If you have any other questions regarding Life Insurance, or you want us to help find the best policy to suit your needs, give our team a call.
