What Is Life Insurance?

Life insurance is a policy that charges you a monthly premium in order to guarantee a payment to the ones you love in the event of your death. Whether life insurance is taken out to cover the cost of a mortgage, or to help with the cost of your funeral, a life insurance payout offers much needed financial support when the people left behind need it most.

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Why Take Out Life Insurance?

With so many different types of insurance around, life cover can often be pushed to the back of the queue. Things like home insurance and car insurance protect you now, whereas life protection seems more distant and abstract. However, you should seriously consider taking out life cover, especially if you have a partner,children, or other dependents.

It’s never pleasant to think about, and death may seem like something far off, but the truth is that none of us knows when it will be our time to go. It could be in fifty years, or it could be in five. When the time comes, having taken out a life policy can mean that your family won’t have to worry about the cost of a funeral, or how to pay the mortgage off.

What Are the Different Types of Life Insurance?

Several different types of life cover are available, so it's a good idea to understand the difference between what's on offer.

  • Term insurance: When you choose term insurance, you pick both the amount of coverage you want and the length of time you want the policy to last. If you die during the term, the policy will pay out, whereas if you survive the term then the policy never pays out. There are two types of term insurance:
    • Level-term insurance: A level-term policy will pay out a sum if you die during the policy's term, and that sum of money will stay the same throughout the term.
    • Decreasing-term insurance: With this type of policy, the amount you are covered for decreases over the length of the policy's term. This is ideal for paying a debt that reduces as you pay it off, such as a mortgage.
    • Family income benefit: This is a type of decreasing life insurance policy, but it is intended to pay out an income to your family, instead of a lump sum. This helps cover your family if you’re the primary breadwinner and they lose your income.
  • Life Insurance With Critical Illness Protection: Most life insurance policies will cover you in the event of your being diagnosed with a terminal illness, but you will usually have to pay extra to be covered for critical illness as well. This helps maintain your income if you’re injured in such a way that leaves you unable to work.
  • Whole-of-Life policies: As the name suggests, whole-of-life policies are intended to cover you for your whole life, rather than run out after a set time. Also known as ‘life assurance’, these policies will pay out whenever you die, as long as you have kept up with the premiums.
  • Over 50s Life Insurance: This is the most common form of whole-of-life insurance and is usually aimed at providing a smaller benefit amount tailored towards covering the cost of your funeral.

These are by far the most common forms of life protection, although it is possible to find tailor-made policies by certain companies that have a range of features.

What are Life Insurance Costs?

When you take out a life cover policy, you will be paying monthly premiums. These range in cost depending on a number of factors, such as how much you want to be covered for and how long you want the policy to last. Your health and age are also taken into account, and some life insurers might want you to have a medical checkup.

Costs can start as low as £5 a month or even less, although many people will end up paying more like £10 or £12 a month. The precise cost will depend on the type of life cover you choose. A decreasing-term policy will generally be cheaper because you're insured for less as time goes on, but this is not always the case.

How Much Cover Do You Need?

Deciding how much cover you need can be tricky. If you want to cover a specific debt, that can give you a good indication of the cover you want to look for. If you want to protect your family after your death, some experts suggest that you should insure for ten times the amount of the main breadwinner's annual salary. Consider factors such as:

  • How much you currently earn
  • Any long-term debts, such as your mortgage or other loans
  • The people who are dependent on you, be it your spouse, children, or elderly parents
  • Life cover benefits you might need, such as critical illness addon

Will A Life Cover Policy Always Pay Out?

It's important to remember that life protection policies aren't 100% guaranteed to pay out. There are common exemptions such as suicide, and things such as smoking without informing your insurer can cause issues with payment. Make sure you read the details of any policy you take out.

Mostly there will be no problem, and you can find out how often insurance providers pay out on their life insurance policies to help you decide who to choose. Many will pay out more than 95% of the time, giving you reassurance that you will be covered.

I Understand What Life Insurance Is. Where Can I Get It?

Right here. We have compared all the options out there to help you make the best choice possible. Our form takes less than 2 minutes to fill out and will guide you to the best providers out there.