Life insurance can be quite confusing. But put simply, it’s designed to give you reassurance that your loved ones will be financially supported in the event of your death.
There are several situations where life insurance is definitely worth considering. Let’s take a closer look.
1. My partner relies on my income
Worrying how your partner would manage for money if you weren’t here might be your key reason for taking out a life insurance policy. After all, you want to make sure they’re financially secure in your absence.
If your household is dependent on two incomes, your partner might struggle to make ends meet on their income alone. Or, if they don’t work and are at home with the children, losing your earnings might mean your whole family has to change their routine so they can earn the money they need when you’re gone.
And if it’s your partner who works and you don’t because you’re at home with the children, what would happen if you died? Could your partner afford to pay for childcare from their earnings?
Life insurance can help take any financial strain away from your loved one at what is already likely to be a very distressing and difficult time.
2. I have children
Becoming a parent or guardian is likely to be one of the most life-changing events that can happen to you. It can also mean that your budget is less flexible than it once was.
It’s natural to worry about your children’s future if you were no longer by their side. Will they struggle to cope financially?
Well, a life insurance policy can give you the reassurance that your dependants will be financially secure. The money from a policy can be used to pay for the mortgage, childcare costs or everyday essential spending and help maintain the lifestyle they know, despite the household’s loss of income.
3. I want to protect my family home
For most of us, mortgage repayments are one of biggest monthly outgoings. Life insurance can provide an extra level of support for your family if you die. It could mean the difference between your loved ones staying in the family home and having no choice but to sell up.
You might want to think about whether your partner and dependants will be able to cope with the mortgage repayments without your earnings. If you have a joint mortgage, your partner will be responsible for the full amount. If they are unable to keep up with the repayments, the mortgage provider could repossess the home.
This is why many lenders often recommend that you take out a life insurance policy when you apply for a mortgage. This is just optional, though, and a policy is not usually needed to secure a mortgage.
You can choose who receives the money from a life insurance pay-out.
Types of cover
So, which type of insurance cover should you take out? Well, you have several options.
You can decide between whole of life insurance, meaning your family will receive money whenever you die, or term insurance that covers you for a set period of time. For example, if you have a 25-year plan, you’ll only be covered within this term.
With term insurance, you can apply for level, increasing or decreasing cover. If you choose level term, the pay-out your loved ones will receive remains the same over the policy’s term.
With decreasing term, the amount of cover will reduce over the term of your policy. This type of insurance cover is usually bought to cover repayments for a specific debt like your mortgage. As time goes by, your outstanding mortgage amount decreases, which is why your life insurance pay-out decreases too.
On the flip-side, increasing term insurance reflects inflation and means that the potential pay-out increases over the term. For this reason, the cost of this type cover is typically more than decreasing or level term.
Of course, each insurance provider has different criteria. The amount you pay each month will depend on a number of factors.
However, you can expect them to take into account the level of cover, term of policy, and your personal circumstances like any health conditions you may have when working out your premium.
Whether it’s a cost you feel’s worth paying will ultimately come down to you.
Disclaimer: All information and links are correct at the time of publishing.