Life Insurance

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What is Life Insurance?

Life insurance (also known as life cover or life assurance) serves as a crucial financial safety net for your loved ones. If you die, a lump sum of money is left to the people you leave behind. By having a life insurance policy, you’re ensuring that your family members are not burdened with financial hardships during an already emotionally difficult time. It offers peace of mind, knowing that your loved ones will be taken care of financially when you’re no longer there to provide for them.

What is the cost of Life Insurance?

Whilst Life Insurance can cost as little as £5 a month, the cost is determined by several factors which influence how likely you are to make a claim. The more likely a claim, the more expensive the premiums. These factors include:

  • Your age
  • Your medical history including any pre-existing health conditions
  • Your family medical history
  • Whether or not you smoke (including vaping)
  • The desired payout amount
  • The term of the policy (how long you take it out for)
  • Your occupation
  • Your lifestyle (including things such as whether you take part in extreme sports)

    The insurance providers use these factors to determine how ‘risky’ you are and therefore how much your monthly premiums will be.

    The combination of factors means that no two policyholders with same type of premiums will pay the same amount for cover. However, the younger and healthier you are, the cheaper your premiums will be due to the fact that you are less likely to need to make a claim.

    Generally speaking, someone who takes out a policy in their 50s is likely to pay lower premiums than someone who takes out a policy in their 20s. However, if the 20 year old is a heavy smoker, has a high BMI, has complex medical issues and regularly takes parts in extreme sports, they may end up paying more than the 50 year old!

    The sum insured also has a big impact on your premiums- the larger the payout, the more expensive the premium.

    Not all insurers treat each ‘risk factor’ the same, so it’s important to seek advice from an insurance specialist to find the most cost-effective cover.

    How much life cover do I need?

    The amount of life insurance you need, depends on your specific circumstances and priorities. Things to consider are the balance on your mortgage and other debts such as loans and credit cards, whether you would like to leave enough to cover the cost of your funeral, and also how much your family would need to live on comfortably on in your absence. An insurance adviser can support you in working out the cover required.

    The three types of Life Insurance

    Term-Based life insurance

    A term-life insurance policy pays out if you die within a set number of years.

    A level term policy pays out a lump sum and the benefit amount remains the same throughout the policy. For example, if you took out a policy for £200,000 over 20 years, regardless of when the claim is made with the 20 year period, the benefit amount would always be £200,000.

    This type of policy is great for covering an interest only mortgage, replacing income and living expenses or for leaving an inheritance.

    A decreasing term insurance also provides a lump sum but the benefit amount reduces over the policy term. This type of policy is typically used to cover a repayment mortgage as the idea that the payout amount decreases roughly inline with your mortgage balance.

    A decreasing term option is generally cheaper than the level term option due to the benefit amount decreasing over the term.

    Both of these policies have a predetermined term which means that if you don’t pass away within the policy term, the policy ends without a payout.

    With a term-based policy, if you have a partner, you have the option of buying a single policy each or a joint policy to cover both of you together. A joint policy can be cheaper but you’ll need to consider whether you need a first-death or second-death policy. With a first-death policy, once one of you die, it pays out but then the policy ends. With a second death policy, it only pays out if both parties are deceased.

    Whole of Life Policy

    A whole of life policy is an insurance which guarantees a payout in the event of your death. This is more expensive than a level term policy due to the fact that the payout is guaranteed.

    Family Income Benefit

    Whilst a term-based policy and a whole of life policy will pay out a lump sum to your beneficiaries if you pass away, family Income Benefit provides a regular monthly sum for a set period of time. You can choose how long to receive the payouts for. For example, you may wish to take out payments until your mortgage is paid off or your children become financial independent. The shorter the term, the cheaper the policy.

    An insurance adviser can support you in determining which type of policy will best suit your needs and circumstances.

    Do you have to get life insurance with a mortgage?

    Whilst is not compulsory to get life insurance for a mortgage, it is highly recommended as it will give you peace of mind that when you die, your loved ones will be left with the home instead of the mortgage debt.

    Which are the best companies for life insurance UK?

    The majority of insurance providers have high payout rates. On average, 98.3% of all claims in the UK are successful. Most of the insurers we work with have payout rates as high as 99%!

    Some providers offer unique benefits so the best provider for one person may not be the best provider for another. It is therefore essential to seek advice from an insurance specialist who can tailor their recommendations to meet your specific needs and circumstances.

    Can I get life insurance with a pre-existing medical condition?

    It is often still possible to get life insurance with a pre-existing medical condition depending on what the condition is. However, it is likely to be more expensive and there may be exclusions written into the policy.

    What will happen to our joint policy if we get divorced?

    If you have a joint policy in place and then separate from your partner, you could keep the policy as it is or you would have the option to cancel it and then each taking out single life policies. It is worth noting that when you come to take your single-life policy out, it is likely to cost you more.

    It is worth seeing professional advice to work out the best option for you.
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