Life Insurance-An important essential

Losing a loved one is distressing enough without having the additional worry of coping financially, which is one of the reasons having life insurance is so important.


This video highlights how a family struggled after losing a loved one who had no life insurance:



As there are different types of life insurance it’s important to understand them so you know which would be better for you.


Term Insurance

This type of life insurance runs for a specific period of time, usually between 10 and 25 years and pays out if the policy holder dies within this time period. When the policy starts there will be a ‘sum assured’ which is the amount that will be paid out if you die during the policy term. There are some policies that will also pay out if you are diagnosed with a terminal illness after taking out the insurance. If you live until the end of the policy term the insurance will simply finish, there is no return of any premiums paid.


There are three types of Term Insurance:

Level Term-This is where the ‘sum assured’ is the same amount from the start of the policy as it is at the end.

Decreasing Term-This type is where the sum paid out will decrease over the time is policy is held. Whilst this type is cheaper than level term insurance it is usually only taken out by those who have a repayment mortgage with the amount it will pay out being enough to cover the outstanding mortgage.

Increasing Term-As the name suggests the amount of payout increases in line with inflation and the rising cost of living. The premiums for this type of policy are more expensive than the others.


Whole of life Assurance

If you want life insurance that will last a lifetime you can take out ‘whole of life assurance’. Insurers’ use the term ‘assurance’ when something is definitely going to happen where as ‘insurance’ is when there is a risk that something might happen. Usually this type of policy won’t have an end date which means you keep paying until you die, at which point it will pay out. However, some of these policies only require you to pay premiums until a certain age, around 85. This type of cover is more expensive than term life insurance, and it is also more complicated. The amount paid out will vary as some of the premiums paid will go into buying life cover and some into investment funds. How much your dependants will receive when you die is dependent on how the investment has performed.


How much cover

In order to decide how much cover you will need you should first of all add up any debts you have. Then you should calculate how much your partner and children will need to maintain their current lifestyle if you passed away. For example, would your partner be able to continue working if there were children that needed to be looked after?

You should then check whether you have any life cover in place, at work for example. There are lots of employers who give ‘death in service’ benefit to staff. This pays out a lump sum if you die. Usually this type of benefit pays out around four times your salary but can vary with different companies so it’s worth checking to see if you have it and if so how much it will pay.


Joint cover or single life

Many couples assume it’s much better to take out a joint life insurance policy but this isn’t always the right thing.

First of all it isn’t cheaper than taking out 2 single life policies, and secondly joint policies will only pay out on the first death which means the person left will have no cover. Since this person will probably be a lot older when their partner dies it will cost more to take out insurance again at this later date.

By purchasing two separate single life policies you will have a lot more flexibility in terms of how much you want to insure yourself for and for how long.


For those thinking ‘I don’t need to consider life insurance just yet’ think again. Nobody knows what’s around the corner but having life insurance means you will have peace of mind knowing your family will be financially secure if anything did happen.