What are the pros & cons of life insurance?

Life insurance is something every person should consider before they die. It helps provide a lump sum payment or regular payments to your loved ones if you die.

There are two different types of life insurance plans, term life insurance and whole life insurance. Term life insurance covers you for a set amount of time, eg. 30 years, whilst whole life cover is designed to remain in place for the rest of your life. 

Both policies require you to pay monthly or annual premiums to keep the cover in place, and we’ll be exploring the pros and cons of each option in this article.

Pros of life insurance

There are a range of pros for buying a life insurance plan, here are just a few:

Provides financial protection for your loved ones

A common worry for any family is what will happen if a loved one dies - as well as the emotional turmoil, there may also be loss of income and/or loss of support at home. 

That's why life insurance provides a safety net in the event of death. It can provide a cash lump sum to help your loved ones through this difficult time.

If you're thinking about getting cover, then you need to think about how much money you want to leave behind after you die. We’ve given some examples of things you could factor into this decision in the next section.

Gives your family peace of mind

When someone close to us passes away, it can be very upsetting. However, having a policy in place could mean that your loved ones won't have to deal with the stress of paying off debts, or dealing with other financial issues.

Instead, your family can have peace of mind knowing they are protected if you should die at any stage. 

The payout from the policy can help your family with financial commitments, such as:

If you or your spouse share an income, have joint assets (like a mortgage together) or you believe there might be an inheritance tax liability, it may be worth looking atjoint life insurance. 

This type of policy provides cover for two people under a single policy. Learn more about joint life insurance.

Life insurance is usually tax-free

One of the biggest advantages of life insurance is that it's often tax free. However, as your cover is considered part of your estate, the payout may be liable for inheritance tax.

This is if the value of your estate exceeds the government threshold (£325,000). If the value falls under the threshold, there is no need to worry about inheritance tax. But there is one sure way to prevent your family being hit with an inheritance tax.

Writing your policy in trust ensures the policy belongs to the trust and not your estate. Therefore, when the policy pays out, it will avoid inheritance tax. Learn more about writing your policy in trust.

You can get permanent cover

Whole life insurance is a type of permanent cover. This policy would cover you for the rest of your life and pay out when you pass away, whenever that may be. This amount is based on the level of cover you've chosen.

For cover to remain in place, you will need to keep up your monthly or annual premiums to the insurer. 

If kept up, your payout is guaranteed. 

Because the payout is guaranteed, whole life policies are more expensive than term life insurance, but this can vary depending on the amount of cover you choose.

Cons of life insurance

Although life insurance cover is a valuable asset, there are still cons attached.

You may have to pay higher premiums

Depending on your age, health and lifestyle circumstances, your insurance premiums could be expensive. 

As you get older, the cost of buying life insurance increases. The same can be said for your health. If you have any pre-existing medical conditions, you could be charged higher premiums. This is because your insurance provider may consider you more of  a risk to insure in comparison to a person with no health disclosures.

It also depends on the type of policy you want to buy and the amount of cover you need. As already mentioned, premiums for whole life cover are more costly, as cover is permanent.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have term insurance and have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

The policy can expire (term life insurance)

Term life insurance is another popular choice for cover. With this type of policy, you pay a set amount each month. The length of the policy varies, but generally lasts between 10 and 30 years.

This type of policy is less expensive than a whole life policy, which can be beneficial for covering temporary debts like a mortgage.

A term policy pays out providing you die within the agreed policy term. Once you reach the end of this term, the policy expires. This can be seen as a negative, especially if you've paid so much over the years.

You could be denied cover if you have health issues

If you have any pre-existing medical conditions, e.g. diabetes, cancer, heart disease, high blood pressure, you may be denied insurance cover. This is because your life expectancy may be lowered as a result of these conditions.

This is where policies such as critical illness cover can be beneficial. Unlike life insurance, it doesn't cover you from death, instead it pays out if you are diagnosed with a critical illness.

No personal benefit

Even though you are the one paying for cover, you won't receive any personal gains. Instead, the payout could go towards ensuring your loved ones are protected financially.

However, not everyone is in the same position. For example, if you are single with no dependants, and no mortgage, it’s likely that you might not need life insurance. Whereas, someone with a dependants is more likely to need cover in place.

Apply for life insurance today!

If you're looking to protect your loved ones, there's no better way than applying for life insurance. Cavendish Online is committed to helping you find the right policy for the best price.

Apply for a quote through our easy to use form to compare quotes from leading providers.

Or if you require further advice, speak to one of our expert life insurance advisers.