What type of life insurance do I need?

The importance of having a life insurance plan can’t be underestimated. Nobody wants their loved ones to be without any financial security when they pass away. However, it's never too late to prepare for the potentially difficult times ahead.

Whatever stage of life you’re at, there’s a variety of options and policy types available to suit your needs. With the advent of the internet, it’s never been easier to arrange and compare life insurance cover online. However, choosing the wrong policy or not understanding your life insurance plan could leave you underinsured.

If you want to get your life insurance sorted but are not sure which type to purchase, this guide is for you. In the next 5 minutes, you will get a detailed explanation of the options available to you, including the difference between whole and term life insurance, helping you to make the right choice.

Which type of life insurance is right for me?

If your children, partner or other loved ones depend on your income to cover their living expenses and the home they live in, you may want to consider family life insurance to help provide for them in the event of your death. You can’t rely on the government to take care of your loved ones - the money they would get from the state is probably much lower than you’d expect.

You can also get life insurance to cover a mortgage. This type of policy plan ensures your loved ones aren't left strapped for cash due to shelling out on monthly payments.

To understand what type and level of life insurance you need, it’s important to take on board your individual circumstances, like savings, mortgages and existing credit arrangements in place. As everyone’s situation is different, so is the type of protection you need and depends on your personal situation and what stage you are in life.

Your age, health in general (including if you smoke), medical history and lifestyle are just a few factors that are considered when applying for cover, and how much your monthly premiums (payment amount) will be.

What are the different types of life insurance? 

The two main types of life insurance are whole-of-life (also known as life assurance) and term life (sometimes just referred to as life insurance). In a nutshell, term life insurance has an expiry date, whereas whole-of-life cover does what it says on the tin, it lasts for the whole of your life. 

We will go on to look at the differences, and benefits of each, in more detail, but first, here are some of the similarities:

• Just like your car insurance or home insurance, whole-of-life and term life insurance require monthly or annual payments (also known as premiums) until the policy ends.
   

• For most standard policies, your level of health and your age will affect the price of your chosen policy, whether it is whole-of-life or term.




• Importantly, term and whole-of-life insurance also offer flexibility to those receiving the payout, as they can choose to use the money wherever it is most needed, so you can rest assured that it will go to good use.

Bear in mind, life insurance usually only covers death. If you can’t provide for your loved ones because of illness or disability, you typically won’t be covered. However, most life insurance policies provide a terminal illness benefit or have an option to add critical illness cover.

Term life insurance

If you're looking for a policy to cover you for a specific amount of time, then term life insurance is an ideal option. With this option, you choose the term length (usually from 5 to 50 years), and if you pass away within this time, the policy will issue a cash lump sum to your family and/or loved ones.

If you survive the policy term, you won't receive a payout, though it's still something to take comfort from.

There are three levels of cover:

• Level term - Also known as 'fixed term'. The cost of premiums and cover amount (death benefit) stay the same throughout the policy, even as you get older.
   

• Decreasing term - Sometimes referred to as 'mortgage life insurance'. The policy is typically linked to a loan or debt, like a mortgage. Over time, the payout value decreases as you make repayments to the mortgage. The premiums for this policy usually remain the same over time, but they are generally cheaper than level term insurance.
   

• Increasing term - The death benefit increases over time in order to protect the value from inflation. This way, your loved ones receive the true value of the policy. The downside is that your premiums will probably increase as well.

Whole life insurance

If term life insurance is yin, then whole life insurance is yang. On the surface, they sound similar, but they operate differently. While term cover protects you for a set time, whole life cover protects you for the remainder of your life. But to ensure your protection is permanent, you need to keep paying your monthly premium.

Another difference is the cost of premiums. As the whole cover is designed to guarantee a payout when you die, it usually carries a higher price compared to term.

Some insurers offer whole life cover with an investment component. For this, the insurer takes the money from your monthly premiums, placing them in an investment fund. Most of the time it's the insurer who is responsible for which investments but some may allow the policyholder to make such decisions.

*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 not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

If you are facing financial difficulty, please contact your insurer before cancelling your policy or letting it lapse. They may have options available that means you don't have to lose the plan.

Joint life insurance

For couples needing life insurance, you could opt to take out insurance separately, or in a joint plan together. 

Joint life insurance covers both individuals under one policy. This can be a more cost-effective option than taking out individual policies, as you're essentially covering two people under one premium.

There are two types of joint cover:

• First death - When one person dies, the policy pays out to the surviving partner. This can provide financial support for the remaining partner and any dependants.
   

• Second death - The policy only pays out when both individuals have passed away. This can be beneficial for providing financial support to any dependants or beneficiaries after both are gone.

Guaranteed life insurance

Obtaining cover isn’t always a straightforward process. Those who are older or suffer from pre-existing medical conditions may struggle to get cover or may be required to pay much higher premiums. In which case, guaranteed life insurance can be a suitable option.

This is specifically designed for those who may have difficulty getting traditional life insurance. With guaranteed life insurance, there are no medical exams or health questions to answer. As long as you fall within the age range specified by the insurer, you can get cover.

One of the main types of this cover is over 50s life insurance - available to people aged 50 and over who would otherwise struggle to get standard life insurance cover.

How much will life insurance cost me?

There's no definite answer as to how much your cover will cost. Instead, there are several factors you can use to gauge the potential cost of your monthly premiums, such as:

• Age: Typically, the younger you are when you take out a policy, the cheaper it will be.
   

• Health: Your current health status and medical history can impact the cost of your cover. If you have pre-existing conditions, you may pay higher premiums.
   

• Lifestyle: Factors such as smoking, heavy drinking, or engaging in high-risk activities can also affect the cost of your life insurance policy.
   

• Cover amount: The more cover you want, the higher your premiums may be.
   

• Term length: Shorter terms may be cheaper but provide less cover, while longer terms may be more expensive but offer greater protection.
   

• Occupation: Some professions are considered riskier than others, which can impact the cost of your premiums.

What happens if I can't pay my premiums?

If you are unable to pay your premiums, there are usually a few options available.

For example, if you are struggling to pay your premiums because you’re currently off work ill, and your plan includes waiver of premium, your insurer will cover your premiums for you and you won’t lose the cover.

Alternatively, they may be able to grant you some sort of payment holiday or repayment plan.  

It’s important to speak to your insurer before making any decisions about your policy. They will be able to provide more information and advice on what options are available.

How can I buy life insurance?

At Cavendish Online, we offer many options to help you find the best insurance for you and your loved ones. You can apply for an online policy yourself in just a few minutes.

If you're buying life cover for the first time, our expert advisors can provide the guidance you need to choose the best policy.

Many people who have a life insurance policy in place tend not to review it very often. However, it’s important to understand if the policy still meets your needs - that’s where Cavendish can help.

[1] https://www.moneyadviceservice.org.uk/en/articles/how-much-does-a-funeral-cost

*Based on the 2020/21 tax year, tax rules can change: https://www.gov.uk/inheritance-tax