What Is Life Insurance Used For?

Life insurance isn't just about providing peace of mind. Your policy could be used to cover a whole host of financial needs and obligations that arise after your death. Once your loved ones receive a payout, they can use the money however they see fit. Though in some cases, the funds may be needed for specific purposes.

In this article, we'll look at the main ways a life insurance policy could be used, as well as the types of life insurance best suited for certain situations.

Income replacement

One of the main reasons people tend to buy life insurance is to make sure that their dependents — such as children, spouses, or other family members — have the financial support they need after their death.

Before your death, your family could be reliant on your income to provide for their everyday living expenses. This could be utility bills, shopping, and childcare, amongst other costs.

The sudden loss of your income could cause a huge financial strain on your family during an already challenging emotional time. This is where your life policy could serve as a financial cushion, helping to ensure that your loved ones can maintain their current lifestyle without the stress of being unable to afford their basic living.

When purchasing a life insurance policy, it’s essential to consider the amount of cover. This typically involves calculating future income needs and factoring in any debts or ongoing expenses your family would need to cover.

Debt and mortgage protection

Life insurance can also be used to protect any debts you may have, most notably a mortgage.

Sadly, when you pass away debts such as mortgages and credit card debts don't simply disappear. They often fall on your loved ones who may already be dealing with the emotional stress of your loss.

Decreasing term life insurance is a popular choice for covering a repayment mortgage because it provides a payout that decreases in value over time, aligning with the outstanding mortgage payments. As you pay off your mortgage, the cover reduces accordingly until it is paid off.

By selecting this type of policy, your family is assured that if anything were to happen to you, they would have the necessary funds to pay off the remaining mortgage. This financial security can be pivotal in allowing your loved ones to continue living in their home without the fear of losing it due to unpaid debts.

Funeral costs

Funerals are never easy, both emotionally and financially. The cost of a funeral can depend on several factors, such as location, service type, and the particulars of the arrangements made. Without a funeral plan in place, your family would likely be responsible for your burial expenses or cremation.

This is where life insurance can play a critical role, with a designated payout specifically earmarked for funeral expenses. By doing so, it alleviates the financial burden from your loved ones, allowing them to focus on mourning rather than worrying about how to fund these costs.

When planning your life insurance policy, you can choose to include a specific amount that covers funeral costs. Unlike a funeral plan - which only covers your funeral services - a life insurance policy can be used for other expenses.

Child support

It's never easy to imagine a scenario where you won't be able to see your children grow up. Worst still, your partner or spouse may be unable to provide the same and financial support without you. Because of this, your children could miss out on opportunities and experiences that you may have otherwise provided.

While you can't predict the future, you can take proactive steps to safeguard your children's well-being. By purchasing a family life plan, you can make sure your children receive the same level of financial care.

Whole life insurance is one type of policy that could provide a financial safety net for your children. Unlike term policies, it lasts for the rest of your life (as long as your premiums are paid). This can mean your children are protected for various stages of their lives as they grow up.

Providing a legacy

It's not just your children who benefit from life insurance. The protection extends to friends, extended family members, charities, or causes you feel passionate about.

If you have young children or grandchildren, for example, you could support them with significant life events, such as a wedding or purchasing their first home.

Retirement planning

There's nothing better than retirement — it's a time to relax, travel, and enjoy the many years of hard work. However, many people underestimate the financial implications of having a secure retirement.

While savings and pensions are often the main source of income post-retirement, life insurance can serve as an invaluable tool in your retirement plan. If you're aged 50+, over 50s life insurance may be a great option to keep your finances secure as you enter retirement.

That way, if you were to pass away your partner, spouse, or children will receive a substantial payout that helps them during a challenging time.

There are other protection products you can explore such as critical illness cover and income protection. Both work to provide financial protection in case of unforeseen circumstances.

Critical illness cover pays out if you are diagnosed with a serious health condition, which could impede your ability to work and earn an income. Income protection, on the other hand, provides you with a portion of your salary if you are unable to work due to illness or injury.

How to get life insurance cover

By now, it's clear that life cover could be a huge, asset regardless of your circumstances or financial goals. With Cavendish Online, life insurance can be affordable and tailored to your needs.

By answering a few simple questions about your health and lifestyle, you could get covered in as little as 30 minutes. Whether you opt to apply online or with expert help, we’re here to make the process smooth and stress-free.

Choose your route:

3. Speak to an adviser

Alternatively, if you have a medical condition, or need a little extra help, you can speak to an adviser. An adviser can help recommend a plan for your specific situation and help with anything more complicated - like a dangerous job or hobby. 

You can call the advised team on

01392 436193 

(Monday to Thursday 9am – 5.30pm, Friday 9am – 5pm)