If you have a family one question will be running through your mind - how can I protect my family when I die? A life insurance policy is one of the easiest ways to ensure financial protection for your loved ones. However, before you rush off to buy cover, there are a few things you need to know…
How does life insurance work?
It’s never nice to imagine, but we all die eventually. In this case, a life insurance policy pays out to your family. This money can support them with financial obligations they might struggle to pay on their own.
Before you can buy life cover, you’ll need to obtain a quote. This provides both you and your insurer with an estimate of the cost of your cover. For more information on quotes, please see the following article - How To Compare Life Insurance Quotes.
As with any type of life insurance policy, you pay monthly premiums to your provider (though some insurers may offer annual premiums - please contact us if this is something you require, as we do not offer annual premiums online). It’s important to keep up with these payments, otherwise, your cover may be ended by your insurer.
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Types of life insurance policies
There are two main types of life insurance - whole life & term life. These policies differ in terms of cover length and premium costs.
Whole life insurance
Also known as life assurance, whole life insuranceputs cover in place for the rest of your life. Your family is assured of a lump sum payout no matter when you die - as long as you continue paying premiums.
Whole life policies are generally more expensive than term life policies as they provide permanent cover. However, both the cost of your premiums and pay-out amount are fixed throughout the policy (if you secure a policy with guaranteed premiums).
Term life insurance
Unlike whole life cover, term life insurance only covers you for a set period of time (known as your policy term). These types of policies only payout if you die within the policy term, if not the cover simply expires and you will not receive any premiums paid back to you.
Term life insurance has 3 levels of cover:
Level term - Both the premiums and pay-out value of your policy are fixed throughout the term. For cheaper premiums, it’s best to take out this kind of cover at an early stage.
Decreasing term - This type of cover is usually taken out alongside large payments like a mortgage that your family would struggle to pay alone. The policy payout decreases over time by a set percentage agreed at the policy outset.
Increasing term - The payout value increases over time so that the eventual amount is protected from inflation. Note that the cost of your monthly payments will also increase too.
Joint life insurance
If you and your spouse share financially with your household it's worth considering joint life insurance. Joint cover protects two people under a single policy and can often work out cheaper and easier to manage than buying two separate life insurance policies.
Joint policies will either payout after the first death in the couple (first death cover) or once both members have died (second death cover). Both you and your spouse can rest easier knowing that there is financial support in place should one of you die.
There are also add ons you can buy for life insurance policies such as critical illness cover.
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Who Needs a Life Insurance Policy?
If you have dependents who rely on you financially it’s more than likely you will need life insurance. There may well be financial commitments that your family would struggle to cover alone.
The types of people who may need life insurance are:
Young families
Parents with older children
Spouses
Long term partners
Single parents
How much cover do you need?
Before you choose how much cover to take out, you need to assess the financial impact of your death on your family.
One benefit of life insurance is that it can be used to support your family with a range of finances such as:
Living costs
Funeral expenses
Household bills
Credit card repayments
Paying off a Mortgage
Childcare support
When Should I Buy a Life Insurance Policy?
If you’re looking for cheap life insurance cover it’s best to buy a policy at the earliest stage possible, as this tends to be when premiums are at their lowest. This is especially beneficial if you have fixed (‘guaranteed’) premiums, meaning even as you get older, your monthly premiums remain the same throughout the life of your policy.
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