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Life Insurance

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Do I need life insurance?

Life insurance is a policy that pays out a lump sum to your loved ones if you pass away during the time you’re covered. Most people use it to pay off a mortgage, cover funeral costs, clear any debts they might have or to leave something behind for their family. You can decide the length, type of contract and cover amount.

You’ll also want to consider whether to take out a joint or single life policy. Your monthly payments are based on all these factors together with your medical history, age and lifestyle choices. You may not end up benefitting from a life insurance policy but it will give you peace of mind knowing that your loved ones are protected.

Types of life insurance

Level term life insurance

Level term life insurance is the simplest life insurance and the ideal option if you are looking for a set amount of cover for a certain period.

With this type of policy, you decide how long you want to be covered for (the term) and the pay-out amount your dependants will receive should you die during the term. Whenever you pass away during the policy, your beneficiaries will always receive the full amount.

Decreasing term life insurance

Decreasing term life insurance policies have a pay-out that decreases over the term of your policy.

It’s sometimes called mortgage life insurance because it’s designed to cover a debt that reduces with time, like a repayment mortgage. As the amount you owe on your mortgage decreases over time, the pay-out amount decreases in line with this too.

Whole of life insurance

A whole life policy has no fixed term as it provides a set amount of coverage for your entire life, with the insurer putting your premiums in a fund until a claim is made. If you’ve kept up the payments, your beneficiary will receive a lump sum when you die.

The insurer may increase the premium if the fund underperforms but the amount of cover it pays out will stay the same. Whole of life insurance is usually the most expensive option as it guarantees a pay-out.

Other types of life insurance

Level and decreasing term are the most popular types of life insurance but there are other levels of cover available to suit your circumstances and needs.

Joint life insurance covers two people but only pays out once with the choice of pay-outs occurring after the first or second death.

Over 50s life insurance cover is more expensive but doesn’t usually have a term limit and can often be obtained without providing any medical details.

Most critical illness policies provide for the payment of a lump sum benefit if the policyholder is diagnosed as suffering from one of a number of specified illnesses. It can also be added as an extra to another life insurance policy.

How do I get cheaper life insurance?

1. Compare providers and quotes to find the best deals for you

2. Take out cover while you are younger as the premiums will be lower

3. Think about your lifestyle, risky behaviour such as drinking and smoking can increase the price you pay

4. Place the policy in trust, this will give you greater control and protects the pay-out from inheritance tax

5. Review your cover and maybe switch providers for a better deal

6. Consider combining policies – combining life insurance with critical illness cover could work out cheaper than buying separate policies

Need more help?

Everyone’s needs are different so the best provider for you is the one that offers a policy best suited to your requirements. Don’t just look at the cost, make sure you consider all the benefits, the exclusions and the percentage of claims that the insurer pays out.

This depends on your personal circumstances and what you might need the cover for. It doesn’t just have to be about your mortgage, you could factor in other debts, monthly outgoings and future costs such as funeral expenses or your children’s education.

Not necessarily, some insurers might ask you to have a medical and others may not. If you are a young, healthy non-smoker then you are less likely to be asked to have a medical than someone older with pre-existing medical conditions.

You can get life insurance if you have a pre-existing medical condition but the premiums are likely to be higher and there will be less insurance providers to choose from.

You can legally have as many life insurance policies as you like. Some people take out more than one policy to cover different requirements, but a single policy covering everything you need may be cheaper.

Contact your insurance provider as soon as possible and explain the situation if you aren’t able to meet your monthly repayments and they may be able to work out a payment plan to help you.