Benefits of life insurance

Still on the fence about whether life insurance is worth the investment? Here are nine reasons why you should take out a policy.

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If your family relies on you to make ends meet, life insurance can be a vital financial safety net for your children, partner and other relatives.

Should you die unexpectedly, it can cover credit card, mortgage and education debts, while also making sure they have money to live on.

When weighing up the kind of coverage and type of policy you might need, you will have to think about your debts and assets as well as your lifestyle and dependants.

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Nine benefits to buying life insurance today:

  1. You’ll have peace of mind, knowing full well that those you care about will have a financial safety net should you pass.
  2. Life insurance can pay either a lump sum or monthly instalments, so you know your family will be taken care of.
  3. Putting life insurance payouts into a trust can mean they aren’t taxed.
  4. Take out a joint policy with a spouse and potentially save costs.
  5. You can get life insurance that increases or decreases your level of cover over time.
  6. You can get add-ons like critical illness insurance. This will give you financial support if you have to leave work due to a serious illness.
  7. Some life insurance deals will take the premiums you pay and invest the money, which could lead to a higher payout.
  8. Certain policies will help your family with funeral costs.
  9. Taking out life insurance when you’re younger will typically be cheaper, as the insurer will see you as more of a risk the older you get.

What is life insurance?

Life insurance is a type of insurance that can provide money for your partner, children and other dependants should you die.

The amount of money they will receive depends on the level of cover you get, but you can decide how it is paid out, whether in a lump sum or in monthly payments.

Typically, there are two main types of life insurance: term life insurance policies and whole-of-life policies.

  • Term life insurance. These types of policies will run for a fixed length of time, for instance 10 or 25 years. The insurer will only pay out should you die during the term though, so it won’t provide a lump sum at the end of the policy.
  • A whole-of-life policy. If you keep up with your monthly or annual premium payments, this type of deal will pay out regardless of when you die.

Benefits of term life insurance

With term life insurance, the insurer will pay out if you die during the agreed policy length. Here are some key features of this type of deal.

  • Level term. This is one type of term life insurance you can get. With this, you pay the same in premiums throughout the deal, and the payout stays the same too.
  • Decreasing term. With this type of term life insurance, your premium stays the same but the payout decreases over time. Typically this sort of insurance will be cheaper and better suited to someone paying off a large debt like a mortgage.
  • Low rates. If you’re young, fit and healthy, this is a way to guarantee low rates for the years to come.
  • Lower premiums. You’ll pay less for a term life deal than a whole-of-life policy, plus you won’t have to continue paying premiums if you outlive your term.

Whole-of-life insurance

Whole-of-life insurance is a type of policy that will pay out a lump sum when you die, regardless of when that is. Generally, it is more expensive than term life insurance as the insurer knows it will definitely have to pay at some point. Here are some other key features.

  • Age cut-off point. Many insurers will only require you to pay premiums up to a certain age, typically when you reach 90.
  • Tax-free payment. One major benefit is if you make the proper arrangements, your family members might be able to receive the lump sum tax-free.
  • Balanced cover. With this type of deal, your premiums will stay the same throughout your policy.
  • Maximum cover. You can take out maximum cover, which will link your insurance policy to an investment fund. Depending on how the investments go, your dependants could get a higher payout. On the other hand, should they go poorly, you will have to pay far more in premium costs.

Is life insurance for me?

Life insurance has benefits for everyone, but it could prove especially helpful in the following situations:

  • You have kids. Should you have children who are of school-age, life insurance can ensure they will be looked after while they grow up.
  • Main breadwinner. If your partner relies on your income, then life insurance will ensure they’re protected should something happen to you.
  • You have debts. Unfortunately, your family will have to pay off any outstanding debts you leave behind. A life insurance policy can ease this burden though.
  • Funeral costs. Some policies will cover funeral costs too, which can cost thousands upon thousands of pounds.

Below is a sample of the types of insurance best for the different stages in life:

AgeLife eventsFinancial obligationsTypes of insurance to consider
18–25
  • Starting full-time work
  • Moving out of parent’s home
  • Starting to build up wealth
  • Day-to-day living expenses
  • Small personal debt
  • Term life
  • Whole life
  • Disability
25–35
  • Increasing wealth
  • Buying a home
  • Increase in short-term debt
  • Marriage
  • Children
  • Short-term debts
  • Partner and children
  • Everyday living expenses
  • Mortgage
  • Term life
  • Whole life
  • Disability
  • Critical illness
35–45
  • Further increase in earnings
  • Reduction of debts
  • Outstanding mortgage and personal debt
  • Investments
  • Everyday living expenses
  • Retirement fund
  • Term life
  • Whole life
  • Disability
  • Critical illness
45–55
  • Maximum earnings
  • Getting ready for retirement
  • Children moving out
  • Outstanding mortgage and personal debt
  • Investments
  • Everyday living expenses
  • Retirement fund
  • Term life
  • Whole life
  • Disability
  • Critical illness
55 and older
  • Protecting accumulated wealth
  • Retire from full-time work
  • Everyday living expenses
  • Any outstanding debts
  • Medical costs
  • Funeral costs
  • Term life
  • Whole life
  • Funeral
  • Critical illness

How can I find affordable insurance?

How much you will have to pay for life insurance will depend on a whole host of factors: your age, job, health and lifestyle all play a part. However, you can lower your costs.

  • Shop around. Compare all your options by using comparison websites and read reviews about different insurers and their policies. After choosing a provider, always read the terms and conditions to make sure you’re getting what you need.
  • Think about what level of cover you need. Take into account the people who are financially dependent on you, and consider how much money they will need to pay off any debts or live without your income.
  • Quit smoking. Stub out your smoking habit and you could see lower premiums, even after 12 months.
  • Keep active and healthy. By staying fit, you pose less of a risk to an insurer, which will mean you pay less in premiums.
  • Buy a policy while you’re still young. It goes without saying any insurance company will see your age as a major factor in deciding premium costs. Take out a policy when you’re young and less of a risk, and you could save in the decades to come.
  • Joint policies: You could potentially get a cheaper deal taking out a life insurance policy alongside your spouse. However, in the long run, the deal might pay out less, so think before heading down this route.
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