Guide to life insurance
Life insurance, sometimes referred to as assurance, is a policy that pays out money when the policyholder is deceased. The idea behind life insurance is to protect any family or dependants that could suffer financially without the income of the deceased.
It seems fairly straightforward, but there are many different types of life insurance and levels of cover. This, combined with a reluctance to consider passing away, this means that many families are left vulnerable.
A lack of knowledge around life insurance results in many people entering the market to look for a policy, without actually understanding their requirements. Some people, particularly those that are single and without any children, may not need it at all.
Types of Life Insurance Cover
Whole life: as the name likely suggests, this cover is designed to protect the policyholder for their entire life. There is no risk of the policy expiring and families being left with no financial support. However, due to the inevitability of death, a whole life policy tends to have higher premiums.
Term assurance – Level term: this type of policy will be in place for a fixed amount of time, usually 25 years, and is often cheaper than whole life assurance. If the policyholder dies at any point within that period, the same sum of money will be paid out.
Term assurance – Decreasing term: as this policy is also term assurance, it is only in place for the specified period of time. With this policy, the amount paid out upon death reduces over time. This is usually the most affordable option, as the pay-out is not a fixed sum and will reach zero towards the end of the term.
Is Life Insurance necessary?
Not everyone needs life insurance, as if there’s no one dependent upon the policyholder’s salary or income, the pay-out may not be necessary. However, there are certain changes within your life that could make life insurance a worthwhile investment.
In general, it’s advised that anyone with children or other dependants takes out some form of life insurance. This can give the policyholder and their family some peace of mind that if something unthinkable were to happen, they would at least be financially secure.
It’s not just children that may be reliant on the policyholder; a spouse may also depend on their income if they are the main breadwinner. This is particularly worth considering for couples that have substantial levels of debt, including a mortgage.
Are there any exemptions to getting Life Insurance
Not every person is eligible for life insurance, but different companies will have their own application criteria. There will likely be an upper age limit on the policy, with people over the age of 60 facing much higher premiums if cover can be provided at all.
Health and fitness is also taken into consideration, so if the policyholder has any existing medical conditions, these might prevent them being eligible for life insurance policy.
Which is the best Life cover
The amount of cover required will vary depending on the needs of the people that are left behind. If the policyholder was the main breadwinner, the family will not only be mourning their passing, but will also have to come to terms with unexpected financial responsibilities.
When deciding the level of cover, it’s important that the amount of income currently being received is considered, but also any debts and the needs of the dependants. The higher the sum insured, the more expensive the premiums, but the cost can be kept down by ensuring you have the most appropriate insurance.
For example, if the policyholder has decided on getting life insurance to ensure that the family are not burdened with the mortgage a decreasing term assurance policy would suit as the pay-out reduces each year in line with the debt.
Cost of Life Insurance Cover
The price of life insurance premiums has come down over the past decade, so it is important that those with existing cover check to see if they could find a cheaper policy.
Due to the recent equality laws in the EU, insurers are no longer allowed to use gender as a deciding factor when setting premiums. This used to mean women tended to get cheaper cover due to their longer life span. However, since the ruling, insurance for men has fallen, but risen for women.
If there are any other factors that make the policyholder a higher risk, such as age, health and whether they are a smoker or not, premiums will be higher.
It’s also worth considering whether the premiums are guaranteed, meaning that they will remain the same for the length of the policy. On the other hand, reviewable policies allow the situation to be reassessed after a certain period, so premiums may go up.
Pros and Cons
As with all types of insurance, there both advantages and disadvantages to paying for cover. The benefits of life insurance are that your dependants will always be protected financially in the event that the policyholder passes away.
Some life insurance will also provide cover for terminal or serious illness, but it will depend on the terms and conditions of the policy.
The main drawbacks are that life insurance seems worth the money if a claim is made, but should the policy expire, it can seem like a high and unnecessary expense. Many people are protected by insurance even though they have no dependants.
Applying for Life Insurance cover
When making an application, any pre-existing medical conditions and/or injuries must be declared, as well as lifestyle choices, such as smoking and exercise. It’s important that all the details on the application are correct, as if there are any discrepancies, the insurer can invalid any claims or even cancel the policy.
Many insurers will accept the information on the application as correct, but some might require a medical examination as well.