What is life insurance?
Life cover can help manage the financial impact of a loss, especially for your loved ones, or those involved in your everyday life. It also means, more importantly, that your family can keep their way of life secure, even when times seem hard, if troubled.
Life insurance pays out a lump sum if you were to pass away whilst covered by an active policy. This extra cash can cover costs, which has commonly been used to help to manage the likes of funeral expenses, pay off existing debts and loans, or to provide funds for household bills.
Why should I get life insurance?
Nowadays, having sensible, if affordable, planning in your life feels like an essential. When thinking about money, it’s even more important to prepare for the future. Life insurance, as a contingency plan, helps to look after the family finances when you no longer can provide that security.
There’s a wealth of benefits to reap from a life policy, such as:
- reduce the upset of a loss.
- leave behind a meaningful, if helpful, gift.
- clear away outstanding debts with a sizable pay-out.
- feel at peace with the family finances, both in the present moment and long into the future.
On reflection, it helps to ask if your loved ones would cope financially if you were no longer around – could they meet the monthly bills? Is the mortgage still manageable? How about any childcare expenses? Or, even, just daily allowances?
How does life insurance work?
It works simply by paying monthly payments, otherwise known as premiums, and if you pass away a cash lump sum will be received by your loved ones (known as the sum assured).
Some policies, though not all, will establish windows of time that you’ll be covered for – these are called terms. Under other cover types, policies can be longer lasting and won’t expire (unless cancelled or where payments are missed).
The actual value amount of the policy, the money issued to your loved ones, will depend on the type and level of cover that you nominate in the application. It is, then, imperative that you smartly research all of the options before getting started.
What is a “sum assured”?
Every policy will hold a certain value throughout its term, which is specific to your personal preferences (the limits of your budget, for example). This is sometimes referred to as the amount of cover you’re insured for, or the policy’s “pay-out“, expressed as a total value. Once a value has been nominated, in the eventuality where your death can issue a lump sum pay-out, your loved ones will receive the amount described in your life policy.
If you take out cover to the amount of £250,000, for example, then your sum assured will be to this exact value.
How is my premium calculated?
In sum, a policy’s finer details can influence the costs of your premiums.
My policy’s language at a glance:
- Terms, or the length of my policy’s activity.
- Sum Assured, or the amount specified in my policy.
What are the different types of cover?
Make it work for you and your loved ones by choosing from a range of insurance types:
You nominate how much to take out and for how long. This will become the amount you’re insured for during the term of your insurance. The term is fixed in this policy, yet the value will stay the same too. The level of cover is ideal for anyone looking to manage outstanding debts, support income, or leave behind a legacy in the form of inheritance. The pay-out can only be issued on your passing.
Whole of Life
Cover for your entire lifetime. Traditionally, this will involve either a monthly or annual premium that you must pay to remain covered. Similar to level term, the pay-out is a fixed value across the policy. Except, in this case, a pay-out on a policy’s maturity is guaranteed. Typically, this is a popular option amongst those later in life (and with relatively good health). The sum assured, in this instance, may be lower than other levels of cover. The value of the policy, however, can be added up over time with payments that are greater than the sum assured.
Usually this type of insurance is taken out to tackle a specific debt that you’ve acquired, which itself is decreasing over time. This means that the financial burden of your purchase, once a sizable debt, will be settled after your passing (and typically applies to homeowners with a mortgage). Similar to the level term option, the term against a policy is predefined. Yet, its value measures up to your debts, which shrink over time and will make your premiums smaller too.
What does life insurance cover (no, actually)?
Life cover is designed as a way of ensuring financial safety and, broadly, covers against different types of death – be it accidental, natural or suicide*. It is, however, important to read the details of your policy carefully, as sometimes, though not always, policies need be active for a certain length of time before a valid claim can be made.
What does life insurance typically not cover?
Your policy will catalogue any exclusions, or incidents where the insurer won’t pay out benefits. These could be where you have a pre-existing condition, or engage in high-risk activities.
A valid claim, generally, must be made within an active policy – or without the term expiring. Make careful note on the length of your policy (the term), ensure regular premiums are met, and offer up full disclosures on application to avoid losing out on the benefit.
Critical Illness Cover is a way of keeping your finances safe if you become diagnosed with a serious illness mentioned in a policy. This plan can pay out a benefit or provide relief in the form of a proxy income whilst you recover.
You can build a policy to suit your individual needs, where it’s not only about affordable life cover, but an inclusive policy that makes you feel safer too. Critical illness cover is among the most popular options to extend your level of protection – and keep your finances secure.
*Suicide will be specific to your policy, so please read your cover for more details.
Can I insure my partner, too?
In short, yes. During your initial application, you will be asked who the coverage is for – this will allow you to nominate a partner to include in your policy quote.
What can it pay for?
The benefit of your policy will be received by your loved ones, who can choose how it should be spent. Essentially, the inherited pay-out can be used in a number of ways, which typically include:
- Paying off a mortgage debt.
- Clearing outstanding loans or debts, outside of a mortgage.
- Childcare – essential considerations for families.
- Inheritance, as though a gift.
- Routine expenses, such as daily living.
- Managing funeral costs.
How much life insurance do I need?
It’s a question of quality over quantity.
This will shape the outcome of your cover – by knowing what you want to leave behind. Broadly, the amount of life cover you might need can be calculated by determining what it is, exactly, that you wish to look after.
Mortgages – to evaluate your total cover amount, you will need to know the existing, or outstanding, value of your mortgage as you take out a policy. You can reference your lender’s correspondance to accurately tie up your debts to your life policy.
A family – You might need to cover more than your mortgage amount. If so, other aspects of life add into the policy value, too: consider inheritance, funeral costs and financial dependants.
How much does life insurance cost?
Every policy is personal. And so, there’s no standard cost.
The price of your cover will depend on a number of things, relating most notably to the risk posed on the insurer. These might include:
- Assets (financial)
- Smoking status
Other variations against a policy’s cost will be determined by the specifics of your cover – the length, or term, and the sum assured, or total value.
Insurers may also look at your application through a metric known as risk. Generally, the higher the risk, the more likely you are to pay a costlier premium per month. Risk, in short, explains your proximity to any dangers, such as a high-risk profession or hobby.
Generally, premiums will be lower for those in their younger years – even those who haven’t yet experienced a larger life moment. It is, then, precisely a good time to start thinking about insurance because your premiums could be low.
What is the average cost of life cover?
Because every policy is different, it’s advisable to avoid thinking about your costs in general terms. You can still manage an affordable cover option into your monthly budget – do the maths on our free calculator. But, generally, we avoid answering these kinds of nebulous questions – where answers can quickly become imprecise, if misguided. Life cover is more often a lengthy commitment, with terms up to 25 years, and so it’s worth thinking about money as a total value won, rather than a monthly deductible.
How many times can I apply?
When it comes to discovering deals, you can be as generous as you’d like with qoutes. Alhough, a comparison tool will connect you with those better rates – quicker, more directly and without the mess.
Remember that one rejected application doesn’t negate other, or future, applications either.
Outlasting your policy, what happens next?
Life insurance is a kind of contingency planning. That means you’re making essential, if wise, preparations for your life plans against the uncertainty ahead. It may be an inexact science, yet smart estimations on your money, when looking after your family’s finances, can ensure that you leave behind something of value.
A policy will only ever pay out if anything happens to you. But if you miss your premiums, or cancel the policy, no valid claims can be made.
Is it really worth buying life cover?
The expert consensus usually has life cover measured up in the wider project of financial planning as an indispensable step toward being secure and sensible with money. You might, for example, have dependants who rely on your regular income, or have a mortgage debt that would otherwise become unmanageable in your absence. This is, then, really a question about financial security – and getting you there.
Ultimately, it should feel like a meaningful, if personal, purchase.
When is the best time to get life insurance?
The thought often occurs to us during a big life moment. It comes as a kind of gentle nudge, or an urge to look after things:
- Getting a new property, and therefore a mortgage.
- Getting married.
- Having children.
- Experiencing a loss.
- Financially mapping out your future – and thinking about your family’s wellbeing.
How long do I need an active policy before a claim can be made?
A valid claim can be made at any point once a policy goes live, or active. This is contingent on the accuracy of the information you provide in the application.
An insurer has the right to investigate a claim, which allows them to determine if the information in the application was truthful. Most polices have a contestability period or clause, commonly around 2 years from the opening of a policy. There can be a review of your medical history, to clarify any investigations against a claim.
Some polices may include a suicide clause, too. This will either specify a window of time or rule out any claim altogether made against a death in this circumstance.
An Over 50s policy may also stipulate a different period of waiting prior to a claim being valid.
Where can I buy a policy?
The kinds of affordability you might qualify for can alter drastically between insurers. The expert consensus advises shoppers in the market for a policy to look around for the best deals, especially ones that answer to your budget.
Compare affordable life cover and save (time & money)
For an easier, more convenient, if smoother, process try comparing qoutes to see how a life policy could meet your budget and goals. Affordability shouldn’t feel faraway when you’re shopping in the UK market for a better way to feel protected.
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