When living costs rise, people often look to see where they can make savings to their outgoings. Part of this process can be stopping money from being spent on things that aren’t needed or that can be reduced. However, it is a good opportunity to review wider financial planning, make adjustments and plug any significant gaps that may have crept in over the years.
Life insurance is a policy that should get reviewed but often gets forgotten. It is an insurance which can be inexpensive to buy and offers a lot of protection in return. It is often taken out when a property is bought using a mortgage, as it is can be a requirement of the lender. Yet it is important to buy additional cover when a family comes along, or you take on additional debts.
If you are reviewing your finances, checking your life insurance covers your family’s needs is a good idea.
What is a life insurance policy?
Life insurance helps give your family financial protection if you were to die. It allows you to leave a lump sum of money to loved ones, and it can be used to help replace your income and pay important monthly costs like a mortgage.
You decide the size of the life insurance policy. The greater the amount of money you want the policy to pay out, the higher the monthly premiums. But a life insurance plan can start from as little as a few pounds a month. You decide how the money is paid to your loved ones on death, it can be a lump sum payment, which would perhaps pay off a mortgage or loan debts or an income for a set number of years.
I am in a relationship, should we insure both of our lives?
Life insurance is there to protect dependents. So if you are both high earners, and don’t rely on each other to maintain a lifestyle or to cover the costs of your living accommodation then you may not need life cover. If you have a mortgage then it may be a requirement of your lender to have a life insurance policy in place to run alongside the mortgage loan.
If you are a parent then it is a good idea to insure the lives of both parents. People often make the mistake of thinking that they only need to insure the life of a working parent or the person who brings home the most income. Yet the cost of replacing a stay-at-home parent is significant, and childcare costs and help with domestic jobs are typically high. If you couldn’t afford to lose one person’s salary or pay for additional family support, then you should have life insurance in place.
Life insurance policies are designed to meet the needs of modern families in the most affordable way. You can choose to buy either a joint or a separate life insurance policy. A joint life policy is often cheaper, but it will only pay out once, and won’t provide cover for the second person after the first passes away.
What are the different types of life cover?
There are three different types of life cover to consider: level, decreasing and whole of life cover.
Level cover allows you to decide the amount of money to leave behind for your loved ones which is paid out in a lump sum if you die. You get to choose how many years you want your insurance protection to run for, and you pay the same monthly premium each month for your insurance until your policy ends. This type of insurance is often chosen to help pay off big costs like the balance of an interest-only mortgage, but it can also help to pay for funeral costs and provide money to help your partner and children move forward with their lives.
Decreasing cover life insurance is a policy which pays out an agreed sum of money, but the amount paid out on death decreases over time. This type of policy is often bought to run alongside a large loan or repayment mortgage, so in the event of your death, the debt would be paid off. The cover lasts for a specific length of time, and your monthly premiums are fixed unless you make any changes to your policy. Because the amount paid out on the policy decreases over time, often in line with you paying off debt like a mortgage, it usually costs less than level cover insurance.
A Whole of Life policy pays out a lump sum to your beneficiaries when you die, whenever that is. There is no fixed term to this policy, and you typically pay the premiums up until your death.
What happens if I become terminally ill, will the policy pay out straight away?
Life insurance is not critical illness cover. They are separate policies and cover you for different things, but you can buy them together. Life insurance guarantees to pay an agreed sum of the death of the policyholder, however, many life insurance companies are sympathetic towards their customers who face the complexity of a terminal diagnosis. Some policies will pay out the lump sum payment early if you’re diagnosed with a terminal illness which meets a specific policy definition and if you’re not expected to live longer than 12 months. Once a payment is made, your policy will end and no further claims will be paid. This can be reassuring that your family will be able to survive financially during a very difficult and emotional time.
Want to find out more?
A financial adviser can help you choose the right life insurance policy to meet your family’s needs. To talk to one of advisers to get a no-obligation quote, call Furnley House on 0116 269 6311 or email info@furnleyhouse.co.uk
