Life insurance is something that everyone should consider buying at some point. While it’s true that life insurance isn’t always necessary, it can be essential for your family, depending on your situation. Not only does it provide an income for your family if you die, it can be used to cover a whole range of future payments.

In this article, we'll look at some of the reasons you may want to buy life insurance, and how it can help your family in the future. But to start off, what is life insurance and how does it work?

What is life insurance?

Life Insurance is a type of protection plan designed to support your family or loved ones financially if you were to pass away or be diagnosed as terminally ill (with less than 12 months to live). You might want to think  about buying life insurance if you have a mortgage, you're planning to start a family or want to ensure that  your partner , children or other dependents receive some money after you die.

Providing you have cover, your insurer will pay your loved ones a cash lump sum when you die. This money can be used to help your loved ones pay off debts, fund education, buy a home, or make improvements to your house.

There are different types of life insurance policies, each offering different levels of coverage and flexibility. Two of the main types being whole life insurance and term life insurance.

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Whole life insurance

A whole life insurance policy provides permanent cover right up to when you die. Essentially, your family is guaranteed a pay out - providing you keep up with your premium payments.

The downside is that since the pay out is guaranteed, the premiums tend to be higher than other options, like term life insurance.  However, premiums are typically fixed, so you'll pay the same amount each month.

Term life insurance

With term life insurance, you agree to pay a set monthly premium over a certain period of time ( 10 years for example). The policy pays out, providing you die within the agreed term. Should you outlive the term, the policy expires, and you may need to purchase further cover if required.

Due to the fact that you may outlive your policy, premiums for term life policies are typically cheaper than whole life. You may want to consider term life insurance if you only need protection for a set amount of time -  i.e. to cover a 30 year mortgage, to protect your children until they are 18 years old, to assist your partner if you were to die within the next 20 years etc. 

Depending on your situation, you may require a specific type of term life cover, such as:

  • Level term cover - This type of cover has fixed premiums and a fixed payout amount. This way, you won't have to pay more for cover as you get older. Your family will also receive the same amount from when you originally bought the policy.

  • Decreasing term cover - This type of cover is intended to cover large payments like a mortgage. The payout value decreases over time as you make repayments. That way, if you die before it's repaid, your family can use the payout amount to cover repayments. The premiums you would pay for this policy are also usually fixed. 
  • Increasing term cover - Also known as indexation or index-linking your policy. This is designed to protect the value of the payout from inflation by increasing the amount over time. That way your family will be protected against cost of living increases. Generally, we would expect your premiums to rise as the amount you’re insured for increases.

Life insurance from leading brands

  • Zurich
  • Legal And General
  • Aviva
  • AIG
  • Beagle Street
  • LVE
  • Royal London
  • Vitality Life
  • Virgin Money
  • Budget Insurance
  • Scottish Widows

Protecting your family for the future

Life insurance is a safe way of ensuring your family is financially protected if something happens to you. As we've learned in recent times, life is incredibly unpredictable, so it's a risky idea to head into the future unprepared. Just by having cover, you can give yourself and your family peace of mind.

The pay out from your policy can help your family cover future costs, such as living expenses and other bills. If you have young children, they may need financial support once they leave school. 

A life insurance policy could also act as inheritance for your children, helping them with future costs, such as buying their first home. Learn more about which type of policy is best families.

Buying a home

If you’re buying a house, it’s safe to assume that you have taken out a mortgage. . But what happens if you die before the mortgage is repaid? Unfortunately, your lender will expect your family to make repayments in your absence, or even to repay the full amount immediately! Life insurance can be a big help in this situation, ensuring your loved ones can continue to live in their home without struggle. 

If you’ve got a mortgage, you might want to consider purchasing decreasing term life cover. The payout decreases over time, in line with your mortgage so if you die before it's repaid, your family will have enough to cover either the repayments or to pay off the debt in full! 

This type of cover isn't always suitable for everyone, though, especially if you're looking for additional protection. For example, if you already have some savings, you could put these towards paying off your mortgage. Learn more about mortgage life insurance.

You're planning to get married

For many newlyweds, the question of whether to buy life insurance won't pop straight into your head. However, it can ensure you and your spouse are financially protected if one of you dies. If you're thinking about buying life insurance for yourself or your spouse, there are some things you should keep in mind.

Many couples opt for joint life insurance - this type of cover protects both partners equally. If one of you dies, the survivor receives a payout - known as 'first death'. This makes sense, since a couple's finances are often interlinked.

If you decide to purchase a joint life policy, here are a few things to think about:

  • You'll probably want to start saving money now. Buying a joint policy early on will likely lead to lower premiums over the long term.

  • Make sure you understand how much coverage you need. For example, if you're planning on having children soon, you may want to ensure that you have enough coverage to support your family financially.

  • Consider using a specialist broker like Cavendish Online. Our expert advisors can provide advice based on your specific circumstances.

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Funeral planning

The process of planning for a funeral can be painful enough for your loved ones, without having to worry about how much it will cost. In this case, the pay out from a life insurance policy could be used to help your loved ones cover funeral costs. That way, your family won't be left out of pocket and can give you the send off you deserve.

Your job is high-risk

If you work in an industry where accidents happen frequently, such as construction, mining or manufacturing, then you may want to consider taking out life insurance. This way, if you were unfortunately  killed whilst working, your family will be looked after.

How much cover do I need?

Like other types of insurance, life insurance premiums vary depending on how much cover you need. The cost also depends on your age, current health status, lifestyle habits, and other personal details.

It's important to remember that there is no one size fits all approach to life insurance. It depends on many factors, including:

When you buy life insurance, you'll be asked questions about your medical history, lifestyle choices, and financial situation. These answers will help determine what kind of cover you need and the cost of your policy.

If you're unsure on how much cover to buy, get in touch with an advisor. They can offer the necessary guidance for you to make an informative decision based on your circumstances.

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