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Why do I need Life Insurance?

Life Insurance is designed to pay out a lump sum to your relatives or other beneficiaries in the unfortunate even of your death, offering peace of mind and financial security at the most difficult of times.
Mortgage Protection

With this kind of life insurance, your mortgage will be paid off if you die, so your family won’t lose their home.

Income Protection

Income protection policies will help to maintain your family’s standard of living by replacing any lost income.

Funeral Expenses

A good life insurance plan will cover the cost of your funeral, so your loved ones won’t have to pay for your burial & medical bills.

Your Children's Education

With life insurance, you can make sure there is money available for your children’s future, even if you are not there to see it.

How does life insurance work?

A life insurance policy gives you the peace of mind that should the worst happen, your family and anyone else who depends on you financially will be given a helping hand at a difficult time. You will pay monthly instalments for the duration of your policy, which ensures that in the unfortunate event of your death your loved ones will receive a lump sum of money.

Life insurance is a selfless product, but it’s important that you’re not spending too much. Policies come in a range of different shapes and sizes, so make sure that you’re aware of the differences so you can get the right cover for you at a price you can afford.

What type of life insurance policy should I get?

There are many different types of life insurance available, although they fall under two main branches – term insurance and whole of life insurance.

Term Life Insurance

These policies will cover you for a set period, usually between 10 and 25 years. Your insurer will only pay you out if you die during this period, although the length of the term is ultimately up to you. There are three main types of term life insurance:

Level term – these policies will pay out your beneficiaries a fixed lump sum should you die within the term. It doesn’t matter how far into the term you are, the payout will always be the same.

Decreasing term – the payout on these policies gets smaller the further into the term you are. These policies are normally used to ensure the repayment of existing debts.

Increasing term – these policies pay out a higher lump sum the further you are into your policy. These policies are useful if you want to protect your loved ones from high inflation.

Whole of Life Insurance

These policies will run for the rest of your life, so will protect your loved ones in the event of your death, whenever that may be. Whole of life cover is also known as ‘life assurance’, since it guarantees a payout should you pass away at any time.

This type of cover tends to be more expensive than the various forms of term life insurance. Therefore, it’s important to weigh up the benefits against the added costs when choosing this type of policy. By comparing policies of both types, you will be able to clearly assess the costs of each and work out which policy works best for you and your family.

Life Insurance Comparison Guides

We've put together some helpful guides so that you can stay fully informed when comparing life insurance policies. For the full selection of guides, click here.

Small Print and Exclusions

Just like any other type of insurance, life insurance policies will come with a range of conditions and exclusions that could prevent a payout. Therefore, it’s important that you read the small print carefully before you sign on the dotted line.

Full disclosure is absolutely essential. While it’s sadly true that admitting previous illnesses or smoking habits will push up the cost of your premiums, failure to declare these could lead to your policy being invalidated.

Normally, your insurer will not pay out if your death is self-inflicted due to misuse of drugs or alcohol, or due to gross negligence on your part. If you’re unsure of anything, speak to your insurer.

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Joint Life Insurance

Taking out a joint life insurance policy is typically cheaper than taking out two single policies. Instead of the payout going to a chosen beneficiary, a lump sum will be paid to the other person on your policy if one of you passes away. However, once this happens, the other person on the policy will no longer be covered so the survivor will need to take out a new life insurance policy if they want to financially protect their loved ones.

The other person on your joint life insurance policy doesn’t have to be your partner – it could be another family member, a friend or a business partner. In the unfortunate event of both policy holders dying at the same time, the money will then be paid out to your chosen beneficiary, for example your children.

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Critical Illness Cover

Critical illness cover will pay out a lump sum to your loved ones if you are diagnosed with a debilitating illness or medical condition. The illness must be specifically stated on the terms of the policy, and you must be diagnosed during the policy’s term to be eligible for a payout. Illnesses can include different forms of cancer, heart attacks and strokes, as well as physical injuries.

These policies give you and your family peace of mind that you will be financially supported in case you are struck with an illness that prevents you from working and receiving income. If your loved ones depend heavily on your income, either for paying the mortgage and bills or just their general lifestyle, you should consider taking out a critical illness insurance policy.

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Death in Service

Depending on your employer’s policy, you may be eligible for death in service benefit. This works similarly to life insurance - your beneficiary will be paid a lump sum directly by your employer if you die while under their employment. This doesn’t mean you must die in the workplace or due to injuries sustained at work to be paid out, but you must be actively employed and on your employer’s payroll.

The payout your loved ones will receive can often be up to 4 times your salary, but again this depends on your employer. However, as most life insurance policies should pay out around 10 times your annual salary, you shouldn’t rely on death on service benefits alone to support your family after your death.

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Frequently Asked Questions about Life insurance:

What will I be covered for?
Life insurance policies are there to financially protect your family and loved ones in the event of your death. However, this doesn’t mean that you will be guaranteed a payout. Each life insurance policy will come with a strict set of terms and conditions that you must not break to ensure your loved ones are paid. Also, most life insurance policies only cover you for a certain amount of time, known as ‘term life insurance’. The size of the payout will depend on the conditions of your specific policy.
Do employers offer life insurance?
This depends on your employer, but there are many companies nowadays that will offer you a death-in-service benefit. Should you die whilst under their employment, they will pay your beneficiaries directly. The amount will often be up to four times your annual salary. However, even if your employer offers you this, it could still be useful to take out additional cover depending on your circumstances, for example if you have a large mortgage to pay off.
How long should I get cover for?
Ultimately, this is up to you. You may want to choose a term that protects your children up to a certain age, for example up to the age of 18 or until they finish university. You should also take your age into account as that will affect how much you pay for your policy.
How much should I expect to pay for life insurance?
This depends on what type of plan you want to take out and how large you want the payout to be. It will also heavily depend on your personal circumstances. If you are a high-risk candidate, for example you are old, have an illness or you smoke, you will be charged more than a lower risk candidate. Therefore, if you lead a healthy lifestyle and are in great physical shape you could expect to pay lower premiums. Your insurer will also consider where you live, as different areas are statistically more likely to claim on life insurance.
Can I get life insurance if I am already ill?
If you have been diagnosed with a serious medical condition, you will probably find it more difficult to take out a life insurance policy. Many insurers will refuse to cover you in these cases. However, it is still possible through some insurance companies, although you should expect to pay a higher premium. There are even some specialist insurers that will offer you a policy that excludes cover for your disease but will offer a payout should you die from unrelated circumstances.
Do my family need to pay tax on the payout?
The payout that your family will receive from your life insurance is exempt from capital gains or income tax. However, in some situations it could be liable for inheritance tax. This can be easily avoided by making sure you write your policy ‘in trust’. This ensures the payout goes straight to your loved ones without being affected by inheritance tax.
Is the money always paid as a lump sum?
Not necessarily. You can choose how you want your family or loved ones to receive their payout after your death. Usually, your insurer will offer to pay out the money as one lump sum. Alternatively, many insurers will give you the option of paying out the money in instalments. This way your loved ones will receive the money as a form of income, making it easier to manage.
How does age affect life insurance prices?
The general rule that applies to all life insurance plans is that the older you are, the more expensive your premiums will be. This is because the older you are, the higher risk you are to your insurer as your life expectancy is lower. However, age is not the only thing your insurer will take into account. They will also consider your general health and lifestyle, so it’s important to focus on these if you are older and looking for an affordable policy. You can still find cover from many insurers if you are over the age of 50, and some of them will offer you cover without even requiring a medical examination.