A beginner’s guide to the life cover
Insuring your own life is cheap, easy and one of the most important things you can do to protect your loved ones. The comfort of knowing your family would be financially secure should the worst happen is simply invaluable.
Why is life cover so important?
Life insurance pays out a lump sum when you die to your partner, your children or any other dependants. In other words it enables the people you love to receive money to pay off the mortgage and any other debts, and cover living expenses like childcare, education and day-to-day needs. It gives your family or partner financial security.
How much does life insurance pay out?
You decide how much you want to get cover for – the sum assured – which could be the level of your outstanding mortgage, to enable your family to stay in their home should the worst happen, or it could be more to cover the loss of a family income.
You set the term you want the cover for – many people choose 25 years and run the insurance alongside their mortgage, for example. But some choose to have cover for longer.
It’s not pleasant to dwell on the subject of death but it is practical, especially when you own a home. After all, the peace of mind you can gain from knowing your family is covered is priceless.
What type of life cover is there?
There are two main types of life cover – term assurance and whole-of-life insurance. Whole-of-life insurance is complex as it combines an investment and insurance policy, and requires financial advice.
Term assurance is cheaper, simpler to understand and widely available - you simply pay your premiums for a set term, at the end of which the policy is over.
There are different types of term assurance:
Decreasing term cover. The sum assured decreases throughout the term. It is the cheapest type of cover and it suits people who want to cover a repayment mortgage, as it reduces alongside the debt as you pay off your homeloan.
Level term assurance. This is a sum assured that remains the same throughout the term. Anyone can take the cover but it particularly suits those with an interest-only mortgage because their mortgage debt remains the same throughout the term. It’s very straightforward as, if you insure for £100,000, the policy pays out £100,000 in the event of a claim.
- Increasing term assurance. The sum assured goes up throughout the term which can protect the value of the sum assured from the effects of inflation.
- Family income benefit. Pays out an annual income until an agreed date – for example it could pay out £20,000 to your partner for each year until 2020. It can be easier for your loved ones to manage a regular income than a large lump sum.
What if I’m single – do I still need life insurance?
Even if you are single and have no dependants, you may want to consider life insurance, particularly if you want to leave a paid-off property to your family. However, it’s a good idea to act sooner rather than later as cover tends to be cheaper for young, single and healthy. An example would be that if you are looking for over 50s life insurance you would expect to pay more than if you applied for insurance from the age of 25.
If you are a couple with children you could consider a joint policy that pays out on the first bereavement. However, it’s worth checking out the premiums on two separate policies as, for very little extra, you could effectively get double the cover.
Critical illness cover
Critical illness cover pays out a lump sum if you are diagnosed with one of a pre-determined list of conditions, which usually include cancer, heart attacks and strokes.
You can take critical illness cover for an amount of your choice and many people choose a level that would pay off their mortgage and other debts if they became ill and unable to work.
It complements life insurance and can be taken as an add-on to a term assurance policy or taken separately.
How much will life insurance cost?
It depends on the type of cover you take but can be surprisingly cheap for such an important insurance. Policies start from around £5 a month for a single decreasing term assurance policy, although your age and state of health can affect premiums.
In other words, this most valuable of insurances is not an expensive option. Find out more about what cover would best suit you or get a quote for life insurance now.
Having trouble working out how much life cover you will need? Our life insurance calculator could help you out:
Copy the code below to embed this calculator on your site: