When it comes to life insurance, there can be a lot to get your head around. So, we’ve broken it down into the different types, when you might need it, and how much it will likely cost.
Life insurance explained
Life insurance is one of those terms that we hear a lot these days, but we don’t all completely understand what it covers, or maybe it’s just not something we want to think about. So, we want to clear up all the jargon to help you make a decision as to whether life insurance is something that is for you.
Let’s start with the basics...
What is life insurance?
Simply speaking, life insurance is a type of insurance policy that pays out money in the event of your death. If you decide to take out a life insurance policy, you will be agreeing to pay a monthly sum to your provider and, in turn, should you die before the end of your policy, you’re nearest and dearest will receive a payout.
There are several different types of life insurance policies, so it’ll be worth looking at the benefits and what is covered before you take out a policy.
Types of life insurance
Level term insurance
This is the simplest form of life insurance which pays out a set amount if you die within a fixed term. The payout amount and the term (or length) of the policy are decided on between you and your provider when you take out the insurance.
One of the reasons people take out level term life insurance is to cover their mortgage should anything happen to them.
Mortgage decreasing term insurance
Mortgage decreasing term insurance is specifically to cover your mortgage in the event of your death. Since the amount outstanding on your mortgage will decrease over time, so does the policy payout and for this reason, this form of life insurance is typically cheaper than level term. Remember, while this applies to mortgages paid on a repayment basis, it won’t apply to interest-only mortgages.
Increasing term insurance
With this form of life insurance, the possible payout increases over time in order to keep up with the rising cost of living and the increase can be fixed or based on inflation. Because of the potential higher payout, this type of policy is likely to cost you more than the above two options each month.
Whole of life insurance
This type of insurance (sometimes referred to as whole of life assurance) does not have a fixed end date and is paid until you die. You might be thinking, why doesn’t everyone get this type of insurance? But you’ll be paying more each month because your provider will definitely be making a payout (if you keep your policy) at some point.
Do I need life insurance?
There are lots of reasons you might want to take out a life insurance policy, but ultimately it’s about peace of mind and knowing that the people you love will be looked after if something happens to you. If you’ve got children, a partner or someone you care for, having a life insurance policy in place may mean they’ll be financially secure in the event of your death.
When considering whether or not life insurance is something for you, it’s worth thinking about what would happen financially to the people around you if something happens to you. If you think they would struggle financially, whether it be mortgage repayments, childcare costs, or just the cost of living, taking out a life insurance policy could help.
How much will it cost?
It all depends on a combination of things:
What type of life insurance you decide on
How much you want the final payout to be
What your medical history is like
Age at the point of application
Each policy varies and is personalised based on your needs. With some providers though, life insurance can start from as little as a few pounds a month so it’s worth checking if this is something you can afford.