Life insurance is a great way to provide financial protection for your family after you die. If you're considering buying life insurance, you may have been wondering whether you can actually afford a policy.
In this article, we'll help you to answer two questions, in particular - how much is life insurance cover? And which type of policy should I buy?
What is the cost of life insurance?
Life insurance won't cost the same for everyone. For some of us, premiums may be affordable, and for others they can be expensive. It ultimately comes down to personal circumstances, as well as the needs of your dependents.
The average cost of life insurance premiums typically depend on a number of health and lifestyle factors, such as:
Age
Health & medical history
Occupation
Smoking status
The type of policy
The policy term (how long you want your policy to run for)
The level of cover ( the ‘sum assured’)
The price depends mainly on your age and health, as well as what kind of policy you buy (term vs whole). But in general, the more cover you want, the higher the premium will be.
Once you take out cover, you are required to pay monthly premiums to your insurer. You need to keep up with these payments in order to remain covered.
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What can life insurance cover?
A policy can provide financial support for your loved ones, helping them manage various expenses in your absence. Depending on the level of cover you choose, the payout can be used to help with:
Living costs
Outstanding debts
Mortgage repayments
Funeral expenses
Childcare and education
Income replacement
By having the right life insurance policy in place, you can give your family peace of mind, knowing they will be financially protected during an already difficult time.
What are the main types of life insurance?
Whole life insurance and term life insurance are the two main types of life insurance policies. They both have different benefits, as well as varied premium costs. One thing they share is that they can pay out a cash lump sum when you die. This can provide financial support for your loved ones during an understandably difficult time. So how do they both work?
Whole life insurance
Whole life insurance provides permanent protection. When you die, your insurer pays out a cash lump sum to help your family during this difficult time.
During the policy, both the value of the death benefit and premium rate remain fixed throughout the policy. Premiums for whole life insurance tend to be expensive, however your family is guaranteed a payout.
Term life insurance
Unlike whole life cover, term life insurance only provides protection for a set number of years. The policy pays out - providing you die within the agreed policy term. Premiums for term life cover are cheaper than whole life, however it only provides temporary protection.
There are 3 levels of term life cover:
Level term cover - Both the death benefit and monthly premium rate remained fixed throughout the term.
Decreasing term cover - Used to cover payments like a mortgage. The death benefit decreases over time as you make repayments on your mortgage loan.
Increasing term cover - Protects the eventual pay out from inflation by increasing its value over time.
While it does not cover death, critical illness cover is another valuable form of protection. This type of policy pays out if you are diagnosed with a critical illness, such as heart attacks, strokes, and certain types of cancer.
How much cover do I need?
It's important to consider the amount of cover you need before purchasing a policy. Your requirements will vary depending on your personal circumstances.
You may require enough cover to meet your current and future obligations. These include helping to pay for funeral costs, paying off a mortgage, childcare costs, and other bills. If you're self-employed or earn a high income, then you might need additional cover to protect against risks associated with your occupation.
If you're looking to keep life insurance costs down, it's important that you take out the right amount of cover. Buying too much cover can potentially leave you spending more money than is necessary.
Furthermore, buying too little cover can leave your family short of money should you die. This may then mean you have to take out more cover, raising your monthly premiums.
If you're unsure on how much cover you need, you can speak to an advisor. They can help you find the right policy, taking you and your family’s needs into account.
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How can I reduce the cost of life insurance
If you're looking to keep life insurance costs down, taking out the right amount of cover is essential. Buying too much cover could potentially leave you spending more money than is necessary.
Furthermore, buying too little cover can leave your family short of money should you die. This may then mean you have to take out more cover, raising your monthly premiums.
As age and health are such key factors in terms of costs, it could be cheaper to buy cover at an early stage. For a 30 year old in good health, the monthly will likely be much less than for a 45 year old with a health condition.
Another way to lower costs is to opt for term cover, as it's often cheaper than whole cover. Keep in mind a cheaper policy doesn't mean better cover. Make sure you understand the terms of the policy and that it provides adequate cover.
Can I get more than one policy?
It's possible to get a joint life insurance policy - this covers two people under a single policy. A popular choice with couples, joint cover can be cheaper than buying separate policies.
Joint policies typically pay out after the first person in the couple dies - known as 'first death'. Another alternative type of joint cover is on a 'second death' basis - this pays out once both policyholders have died (not available through the Cavendish Online website - please speak to an adviser for more information and to get a quote for this type of policy).
When should I get life cover?
If you’re like most people, the answer is probably “never.” You can always find a way to live without it. But if you want to ensure that your family will be taken care of in the event of your death, then it may be time to consider buying life cover.
The best time to buy a policy is when you're young and healthy. As you get older, your risk of dying increases, so you can expect to pay a higher premium.
If you're ready to buy life insurance, look no further than Cavendish Online. We can help you find and compare affordable life insurance quotes from leading providers.
Learn more about applying for life insurance with Cavendish Online.
