Many people find life insurance difficult to discuss as this type of policy only pays out in the event of your death. Also known as life cover or death cover, life insurance is suitable for people who have children, partners or other family members who are dependent on them or who they would like to leave a legacy to.
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What is Life Insurance?
Life insurance is a type of insurance policy that is designed to support your dependents in the event of your death. If you pass away or suffer from a terminal illness with a 12-month life expectancy or less during the length of the policy, it will pay out a tax-free cash lump sum or monthly income.
A life insurance policy provides comfort for the policyholder, as they know their dependents will be financially supported should they no longer be there to provide for them.
The amount of money that could be paid out will depend on the level of cover you purchase. Some types of life insurance will also let you pay out a regular monthly amount rather than a lump sum. These policies, called Family Income Benefit, can be used to pay recurring expenses such as mortgage or rent payments.
Types of Life Insurance
There are two main types of life insurance available.
Term Life Insurance
This type of policy runs for a fixed period of time, for example, 5, 10 or 25 years. A term life insurance policy will only pay out if the holder dies during the term of the policy.
If the policy term ends and the policyholder hasn’t passed away, then the insurance simply lapses. There is no end of policy payout.
Term life insurance policies come in three different forms;
Level term: A level term life insurance policy pays out a fixed sum should you pass away. The payout won’t change during the life of the policy.
Decreasing term: A decreasing term policy will payout a reducing amount over the term of the policy. This type of life insurance is generally taken out in line with a mortgage or other debts and can also be referred to as mortgage life insurance.
Increasing Term: Often also called ‘Index Linked’, the payout sum rises over the term of the policy. The increases may be an agreed amount each year or be linked to the retail price index. The benefit of this type of policy is that the payout maintains its real-world value throughout the term.
Whole of Life Insurance
Sometimes also known as life assurance policies as they payout no matter when you die. These policies have no fixed term and run for as long as you keep up the payments.
Do You Need Life Insurance?
As with all types of insurance, whether it is right for you depends on your own personal circumstances.
If you have children, a partner or other family members that rely on your income then a life insurance policy will provide for them after you’re gone.
If you have a mortgage, life insurance can often be used to pay this off, allowing your family to stay in their home.
Life insurance can also often be used to cover funeral expenses, removing the financial burden on your loved ones.
Life insurance policies should pay out when the policyholder dies.
Many policies will also cover against terminal illness, providing the life expectancy is under 12 months. You should check the terms and conditions of any policies you are considering to confirm if they provide this type of cover.
What Isn’t Covered?
If you become seriously ill or disabled but don’t have a terminal illness, then life insurance won’t payout. There are other types of insurance products such as Critical Illness Cover or Income Protection that cover these types of issues.
Death from drug or alcohol abuse is very unlikely to be covered, and if you take part in dangerous sports, or have a dangerous job, then you can expect to pay extra.
How Much Does Life Insurance Cost
Life insurance policies can be very reasonable, and cover may cost as little as £5 per month. There are a lot of providers, and so it pays to shop around to get the best deal.
When quoting you for life insurance, providers will take several factors into account. These will include;
- Your age
- Your health
- Family history of serious illness
- Lifestyle (e.g. Do you smoke, are you a heavy drinker)
- The duration of the policy
- The amount of money you want to be paid out should you die
If you are young, healthy and active, your policy will be cheaper than a middle-aged person who has smoked for 20 years.
Life insurance offers peace of mind that your loved ones will be financially supported should you die. It can be relatively cheap, but it always pays to read the terms and conditions to ensure that the policy you select meets your needs.
At Elementary Mortgage Solutions, we work with a broad panel of insurers. Our experts will assess your situation and suggest the most suitable policies for you based on your personal circumstances.
If you’d like to discuss life insurance or any other kind of insurance, please contact our team.