One of the key concepts of life insurance is that it can pay any dependents you have a cash lump sum or regular payouts upon your death.
It has been designed as a way of providing you with a level of reassurance that those who are dependent on you are looked after should you no longer be around.
Of course, the amount of money that will be paid out depends on the amount of cover that you purchase. You may also make decisions as to how it will be paid out and whether the money is earmarked to cover particular payments such as rent or a mortgage.
There are a couple of main types:
- The term life insurance policy runs over a fixed period, and will only pay out should you die within that period. No lump sum is redeemable at the conclusion of a term policy.
- The whole-of-life policy pays out irrespective of when you die.
What is not covered?
Life insurance does not cover disability or illness. The majority of policies have exclusions. As an example, if your death is cause by alcohol or drug abuse, there is no cover.
Should you have a particularly serious health problem when the cover is taken out, this may also be excluded from payout.
Are you in need of it?
If you have dependents – a partner who is dependent on your income, school aged children, et cetera – if you die, a life insurance policy may provide for them.
If you are unable to rely on governmental help for your family – perhaps the amount is too small – then life insurance becomes a necessity.
Who does not need it?
Your partner may earn enough income for your family to be comfortable, or you may be single, in which case, life insurance may not be required.
How much does life insurance cost?
Life insurance can be good value. Depending on your circumstances, a few pence each day can be plenty enough to provide your family with financial protection. In fact, on average, 100k life cover for a period of 10 years, for those who do not smoke and are aged 54 years, works out at less than £1 a day.
Nevertheless, monthly payments, which are also referred to as premiums, can and do vary. Thus, it’s wise policy to shop around and to find out precisely what will be covered given the amount that you are paying.
There are a number of factors that impact the amount you will pay for life insurance. That includes the policy length, the amount you wish to cover, your current health status, your current age, whether you smoke, and your current lifestyle.
As an example, a younger person who is less likely to die on account of a medical condition will enjoy a cheaper life insurance policy than otherwise.
Do you already have life insurance?
You may have an employee package which includes something called “death in service” benefits. In which case, this covers you for a certain multiple of your income and as such, you may not be in need of any life insurance.
You do need assess whether this policy will provide enough cover in the event of your death or whether you should opt for additional cover.
Do keep in mind that if you no longer work for this employer, you will lose your coverage under this policy.
Consider other forms of insurance
Life insurance will cover a worst-case scenario, though you should also consider other matters such as bill payments and your mortgage if you are unable to work due to injury or illness.
You may benefit from income protection insurance. Income protection insurance provides for regular payments if you are unable to work on account of injury or illness.
Perhaps instead you need critical illness insurance. Critical illness insurance provides you with a lump sum which is tax-free should you be diagnosed with a serious illness that is under the provision of your policy.
Think also about payment protection insurance, which is a policy that will help you to maintain any regular payments if you are unable to work – maybe because you are ill, you’ve suffered an accident, or you have been made redundant.
You might be in need of short term protection insurance. This is a solution which provides short term insurance cover that can help you to pay for any essential outgoings if you are unable to work for any reason.