Life Insurance - Everything You Need to Know

How to make sure you’re prepared for whatever life throws at you with our quick guide to life insurance.

Read the full article 

Life Insurance - Everything You Need to Know

No-one wants to be reminded of their mortality, but the phrase, “You don’t buy life insurance because you are going to die, but because those you love are going to live,” is as accurate now as it ever was.

Life insurance isn’t something that should be covered when you’re on your last legs, but can be organised in the full prime of youth. Okay, maybe not that early. However, the earlier you do it, the better (and cheaper) for you and your family. It’s about putting that peace of mind in place as soon as you need to, and as soon as you can.

Want to talk about what kind of life insurance is right for you?.

Our team can give you clear advice, with no strings attached.

Get retirement advice from our team today

What is the point of life insurance cover?

There is no way to dress this up, the point of life insurance is to help protect your family and loved ones in the event of your death. It’s an insurance policy that pays out a lump sum should you pass away or be diagnosed with a terminal illness.

Life insurance is also known as ‘life cover’ and, more bluntly, as ‘death cover’. It provides a safety net that - in your absence - will help your family with living expenses, mortgage debts and more, depending on the level of cover. In addition to a ‘single life’ policy for yourself, you could also consider a ‘joint life’ policy, one that’s usually taken out to cover your and your partner’s lives.

When is a good time to take it out?

Many people delay taking out life insurance because it’s something they simply don’t want to think about, but it's generally best (and cheapest) to take out life insurance as early as possible. However, when you do so is largely dictated by where you are in your life. If you have children, a spouse or civil partner or a mortgage, your need for life insurance will be greater than if you don’t.

How much life insurance cover should I take out?

There is no straight answer to this as it is really down to you, your situation and what you want to provide for your loved ones if you are no longer there.

Ideally, if your life insurance pays out, it should pay off outstanding debts such as your mortgage, provide for funeral costs and leave a lump sum for your family to use. Your family will have to live without your income, so you need to consider what level of cover you need to make up for that.

Depending on your current financial situation you might just want to ensure your mortgage is paid off for your partner. If you have children, you might want to provide for their education and university funds, or even a deposit for a house. Simply put, the more cover that you want, the higher your premium will be. It also pays to be aware that the older you are when you take out life cover, the more expensive it will be, but you can always increase the amount covered at a later date.

What does life insurance cover?

Ideally, if your life insurance pays out, it should pay off outstanding debts such as your mortgage, provide for funeral costs and leave a lump sum for your family to use. Your family will have to live without your income, so you need to consider what level of cover you need to make up for that.

What eventualities your life insurance specifically covers will depend on the policy you choose to take out. While many types of life cover are broadly the same, there may be some differences and exemptions in the small print. For example, while life insurance generally pays out for natural and accidental causes of death, some insurers may put in provisions about risk, especially if you work in a more dangerous profession. As with all matters financial, it’s best to seek out advice.

What are the main types of life insurance?

There are two main types of life insurance to consider - term life insurance and whole-of-life insurance. With term life insurance you pay regular premiums and a lump sum is paid out to the beneficiaries if you die within a certain period. You decide how much cover you desire, and the length of the cover. If you outlive the term you’ve set, the policy will not pay out. Within term life insurance, there are variations such as decreasing-term and increasing term policies.

The alternative is whole-of-life insurance, which offers cover for all of your life and then pays a lump sum upon your death. No matter when your death occurs, it’s covered and the beneficiaries will receive a lump sum. You can opt for a ‘single life’ policy to cover just one person, but also a ‘joint life’ policy, which covers two lives but will payout upon the death of one of the two policy holders.

What factors can affect how much I have to pay for life cover?

When you take out a life insurance policy, the insurance company will ask you a lot of questions, the answers to which will determine what your premiums will be. Age is a major factor, as the older you are, the more likely you are to develop a serious medical condition.

Health factors are important too - are you or have you been a smoker? Do you drink regularly? Do you exercise? Do you have a pre-existing medical condition? What job do you do? All of these, taken in the round, build up a risk profile for the insurance company and can lead to higher or lower premiums as a result. The other major variants here are the length and amount of cover. The more cover you want, the more you’ll pay.

Is there anything I should take into account?

There are a few other considerations to make when planning life insurance. You may want to combine it with a will so that you can name specific beneficiaries. You may want to shield some of your loved ones from inheritance tax by placing the life cover lump sum into a trust.

It’s also important to understand any policies your employer has in place in this area. Some people will have a ‘death in service’ benefit that may make having a life insurance policy redundant, or may affect how much cover you want to take out.

Margot had hoped to inherit the entire family art collection.

Wouldn’t you prefer to know how to best look after your most precious assets?

Learn more

Our Financial Services 

Straight Talking Financial Advice Since 1935 

We have the expertise to give you the advice that you need to make smart choices for the future.

Get in touch and see what we can do for you.

  Arrange a free consultation