Life Insurance Guide
Life Insurance will pay your family a lump sum in the event of your death. It is sometimes known as Life Assurance.
Why do I need Life Insurance?
Life Insurance is designed to give you peace of mind that your loved ones are financially secure if you should die. Most people have two main reasons for taking out a life insurance policy:
- To pay off any remaining large debts like a mortgage
- To protect their family’s lifestyle, by meeting bills or paying for school and university fees
Life Insurance is not just for the breadwinner of the family. It can cost a small fortune to replace a housewife/ househusband, but a life insurance policy will help with the cost of replacement childcare.
How much cover do you need?
If you are a homeowner with a partner or children, you will need enough cover to pay off your mortgage, as well as any other outstanding debts. You may also want life insurance to replace at least some of your income. How much a family needs will vary from household to household, so ultimately it is up to you to decide how much cover you can afford.
Term Assurance Life Insurance
There are two main types of Life Insurance: Term Assurance and Whole of Life. A term assurance policy will protect you until a key date in the future, like when your mortgage is due to be paid off or when your children reach adulthood. If you die within the policy term then the insurer will pay out, but if you do not die during the policy term you will not be paid and your premiums will not be refunded.
Level-term Life Insurance
A level-term life insurance policy is a type of term assurance policy. It will pay out a lump sum ( also called the ‘sum assured’) if you die within the specified term. With a level-term policy, the lump sum payable on death remains the same throughout the term, and your premiums usually stay the same too.
Decreasing-term Life Insurance
A decreasing-term life insurance policy is another type of term assurance policy. It will pay out a lump sum if you die within the specified term. However, with a decreasing-term policy the lump sum payable on death reduces over time. These policies are often used to cover a debt that decreases over your life, like a repayment mortgage. Premiums of a decreasing-term policy are usually cheaper than level-term cover.
Whole of Life Insurance
A whole of life policy will cover you for your entire lifetime rather than until a fixed date. Because it is certain that the insurer will eventually have to pay out, whole of life policies are more expensive than term assurance policies.
How much does Life Insurance cost?
Your life insurance premiums will vary according to a number of factors:
- The sum assured (lump sum payable on death)
- The length of your policy
- The type of policy
- Individual lifestyle factors like your age, state of health and your smoker status
An ActiveQuote specialist will be able to help you find a policy with the right amount of cover at the right price.
Will the costs of my policy increase?
The costs of your life insurance policy will not increase unless you choose a reviewable policy. Reviewable premiums are guaranteed for a set number of years, like the first five or ten years of the policy. A review will then be carried out to determine whether the premium is still appropriate for the level of cover. Your premiums may increase or decrease at this point. Reviewable life insurance policies tend to be cheaper to start with, but may become unaffordable in later life.
Could I buy a joint Life Insurance policy?
Couples who both want to be covered with life insurance might consider a joint policy. A joint life insurance policy will cover two lives on a ‘first death’ basis. This means that the sum assured is paid out if the first person dies during the policy term. After this, the plan would end.
Whilst ActiveQuote can quote joint life insurance policies, it might be better to look for two separate policies. Two single life policies would pay out twice and will often be no more expensive than a joint policy. An ActiveQuote specialist can offer you two separate quotes if you would prefer.
What about Critical Illness Cover?
Critical illness cover pays out a lump sum on the diagnosis of one of a number of predefined serious illnesses. This type of cover can be added to your Life Insurance policy. Take a look at our page on Critical Illness Cover for more information. Some life policies will include a Terminal Illness benefit which pays out if your illness is deemed to be terminal. This is not to be confused with a Critical Illness Cover policy.