Not everyone needs life insurance (also known as life cover and death cover). But if your children, partner or other relatives depend on your income to cover the mortgage or other living expenses, then the answer is yes – you probably do want life insurance, since it will help provide for your family in the event of your death.
What is life insurance?
Life insurance can pay your dependants money as a lump sum or as regular payments if you die. It is designed to provide you with the reassurance that your dependents will be looked after if you’re no longer there to provide.
The amount of money paid out depends on the level of cover you buy. You can also decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.
There are two main types of life insurance:
Term life insurance policies run for a fixed period of time (known as the ‘term’ of your policy) – such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the policy. There is no lump sum payable at the end of the policy term.
A whole-of-life policy will pay out no matter when you die, as long as you keep up with your premium payments.
What isn’t covered?
Life insurance only covers death – if you can’t provide for your family because of illness or disability, you won’t be covered.
Most policies have some exclusions (things they don’t cover). For example, they may not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports.
If you have a serious health problem when you take out the policy, your insurance may exclude any cause of death related to that illness.
You can buy other insurance products for these issues, which cover total and permanent disability, long term illness or critical illness cover.
Do you need it?
If you have dependants – such as school age children, a partner who relies on your income or a family living in a house with a mortgage that you pay – a life insurance policy can provide for them if you die. You might also want a policy which covers your funeral expenses.
You can’t rely on the government to take care of your family – the money they would get from the state is much lower than you’d probably expect. If you want to provide for your family financially if you die, life insurance is a must.
How much does it cost?
Life insurance can be very good value.
Often just a few pence a day is all you need to provide your loved ones with plenty of financial protection (depending on your age and health status).
Did You Know?
The average premium for a non-smoker aged 54 taking out £100,000 of life insurance for 10 years is less than £1 a day – that’s half the price of a coffee!
Source: Which, April 2013
But monthly payments (also known as premiums) do vary, so it’s a good idea to shop around. Check exactly what is covered for the level of the monthly payment.
The price you pay for a life insurance policy depends on a number of things. These include the amount of money you want to cover, the length of the policy, but also your age, your health, your lifestyle, and whether you smoke.
For example, the younger you are and the less likely you are to die from a medical condition, the cheaper your policy is likely to be.
