Life insurance can give you peace of mind that your loved ones won\u2019t be left financially stranded if you die, but it can \u2013 in some cases \u2013 even minimise any inheritance tax bills. Our guide explains how to compare policies so you pick the right one for your family.<\/p>
Life insurance is a type of protection insurance. When you die, it can pay out a lump sum to your loved ones. This can be used to clear any big debts, such as a mortgage, and cover the ongoing cost of living expenses and bills.<\/p>
When you take out life insurance, you agree the amount of cover you want and those you want to receive the benefits. If you die within the term covered by your life insurance, the beneficiaries will receive a lump sum payout.<\/p>
Whether your loved ones are guaranteed to receive a payment on your death depends on whether you\u2019ve taken out a whole of life or term policy (keep reading for more on what these mean). With the latter, you can also choose whether the payment is set at a fixed amount, or whether the amount they\u2019ll get decreases over the term of the policy (to account for your mortgage debt going down over time, for example).<\/p>
There are 2 main types of life insurance cover:<\/p>
Term life insurance is probably the most common form of life insurance cover. Term insurance is life insurance that lasts for a fixed period or term. If you pass away within the policy term, then your insurance company will pay a lump sum to your dependants. However, if you don\u2019t pass away during the policy, then it lapses and you will no longer be covered, nor will you receive any form of payment.<\/p>
Term life insurance could be for you if:<\/strong> Your loved ones won\u2019t need the payout as much after a certain point \u2013 for example, after your mortgage has been paid off, or your kids have grown up and flown the nest.<\/p> Whole-of-life cover offers insurance protection for your entire life. This means your insurance provider will pay out in the event of your death whenever it occurs. This type of life insurance will have much higher premiums than term insurance. That\u2019s because, unless you cancel your policy or fall foul of one of the exclusions that could invalidate it, the provider will have to pay out sooner or later. Although whole-of-life insurance is not as popular as term life insurance, many find it useful to combat inheritance tax.<\/p> Whole-of-life-cover could be for you if:<\/strong> You want the payout to cover ongoing bills and costs of living for your beneficiaries. If the life insurance policy is written into trust, this could also help your loved ones manage inheritance tax bills.<\/p> There are a number of different life insurance policies out there, so you will need to decide which one is the right one for you. Maybe you\u2019ve just got yourself a hefty mortgage and you\u2019re looking for life insurance while you pay it back, or you\u2019ve just had your first child and you\u2019re looking for life insurance while they are financially dependent on you. Well, you\u2019re in luck. There are a whole host of different term life insurance policies to suit your individual needs.<\/p> While you might come across several different names for types of whole-of-life insurance, these broadly break down into 2 broad categories.<\/p> First things first: If you don\u2019t have any dependants, life insurance isn\u2019t essential, as its primary purpose is to ensure that those you leave behind have financial support. That said, there may be occasions when whole-of-life insurance can be a useful estate-planning tool.<\/p> However, if you have loved ones that would be put under financial stress if you were suddenly not around to provide a steady income, then you should give serious consideration to taking out life insurance cover.<\/p> Whether it\u2019s the birth of your first child or the purchase of your first home with your partner, the moment that others become financially dependent on you is the moment you should consider taking out life cover.<\/p> Significant life events that may prompt you to take out life insurance include:<\/p> Despite the slightly complex choices you need to make about the type of policy, at its heart, life insurance cover is fairly simple. It usually only pays out for 1 event: the policyholder\u2019s death. A rare exception to this is if the policyholder receives a terminal illness diagnosis that gives them less than 12 months to live, in which case the policy may pay out early.<\/p> Most common causes of death are covered, including unexpected illness or disease, cancer, heart attack or accidental death.<\/p> In most cases, death as the result of suicide or intentional self-inflicted injury will also be covered, though this is typically excluded if it happens within 12 months of taking out or renewing your policy.<\/p> Insurance providers have rules and guidelines surrounding when they will and won\u2019t pay out. Make sure you read through your specific life insurance policy documents and understand the insurers rules and regulations surrounding claims and payments. As standard, most policies won\u2019t pay out in the event of death caused by the following:<\/p> Bear in mind that life insurance only pays out for death or, in some cases, a terminal diagnoses. It won\u2019t pay out if, for example, you\u2019re unable to work due to illness or injury. For that, you\u2019ll need critical illness or income protection insurance.<\/p> The right type of life insurance will depend entirely on your personal circumstances, including:<\/p> Life insurance isn\u2019t cheap, so it\u2019s a decision that shouldn\u2019t be rushed. Take your time to consider your options and assess life insurance quotes. If you\u2019re not certain what you need or how to find the best cover, we\u2019d recommend speaking to a life insurance adviser.<\/p> While there\u2019s no like-for-like equivalent for life insurance, there are some forms of protection cover that could be worth considering, depending on your circumstances.<\/p> As with the type of cover you need, this will depend on your personal circumstances. The higher the level of cover, the higher the premiums are likely to be.<\/p> One rule of thumb is to get cover for 10-12 times your annual income. Alternatively, you may simply want to get enough to at least cover your existing debts.<\/p> If you\u2019ve just taken out a mortgage or have young children that will need ongoing support for their education and living costs, you may need to get a larger life insurance policy than someone who has paid off their house and whose children are living independently.<\/p>Whole-of-life cover<\/h4>
What types of term life insurance policy can I get?<\/h3>
What types of whole-of-life insurance policy can I get?<\/h3>
Do I need life insurance?<\/h3>
What does life insurance cover?<\/h3>
What does life insurance not cover?<\/h3>
What is the best type of life insurance cover for me?<\/h3>
Are there any alternatives to life insurance?<\/h3>
How much life insurance cover do I need?<\/h3>
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