Do I need life insurance?
Life insurance can help give you some peace of mind when going through big life changes, both good and bad.
Life insurance can be a great way to quiet down worries that might pop up when you go through big life changes. There are many reasons why someone might choose to take out a life insurance policy, and just as many different types of life insurance products!
Which means you can choose a product that gives you confidence but also fits your budget.
So, do you need life insurance and, if so, what kind of life insurance do you need?
In this article, we’re going to take you through a few reasons why you might decide to take out a life insurance policy and explain which type of life insurance fits each reason.
Do you need life insurance for a mortgage?
Taking on a mortgage is a big commitment. And it’s a commitment that doesn’t die with you.
If you die before your mortgage is paid off, that debt will fall to whoever inherits your home. If you have a joint mortgage, it’s likely that your partner will take on the whole debt.
To stop this from happening, you can take out a life insurance product that will pay off whatever is left of your mortgage. This is known as a “decreasing term life insurance” policy because the amount that the insurance company will pay out goes down as more of your mortgage is paid off while you’re alive.
Decreasing-term life insurance: key facts
- The payout for your policy will go down with time. Similarly, as you’ll be making mortgage payments while you’re still around, the amount you owe on your mortgage will also go down over time.
- Despite your payout going down, your premiums stay the same throughout the entire term of your policy, (unless you request to change your policy), which is why this type of policy tends to be cheaper than some others.
- Many decreasing-term life insurance policies are flexible in terms of how much cover you want and how long you want your policy term to be.
- You can also include critical illness cover, which pays out if you are diagnosed with a serious health condition.*
Do you need life insurance when you get married or have a child?
If there are people who depend on you to keep the lights on and the fridge full, they’d probably find themselves in trouble if you weren’t around.
When people rely on your financially, you’ll likely want to make sure they’ll be looked after if something happened to you.
There are two types of life insurance you might consider, level-term and increasing-term.
Level-term life insurance is designed to pay out a guaranteed amount when you die, so you can make sure this is enough to cover your family’s needs when you take out the policy, but the amount they need might increase over time as costs go up.
With increasing-term life insurance, the payout amount increases over time to keep up with inflation. This means you’ll likely end up paying higher premiums as time goes on, but it can be a good option if you’re worried about how rises in inflation could affect your family’s ability to cope without you.
Level-term life insurance: key facts
- Throughout the length of your term, your premiums stay the same (unless you request to change your policy) and so does your payout. It’s guaranteed to pay out when you die.
- You agree on the amount of cover you’ll receive and the length of your policy term when you first take out your policy.
- The younger you are when you decide to take it out, the cheaper your premiums tend to be.
- While you’ll know exactly how much your family will get in a payout, this might not keep up with inflation.
- Just like other life insurance policies, critical illness cover may be offered as an add-on or included in your policy.
- Premiums tend to be more expensive than for decreasing-term life insurance policies.
- There’s a possibility that the payout of your policy could get hit by inheritance tax, but you can prevent this by placing your policy in trust. This is where you name a trustee to receive your policy when you die.
Increasing-term life insurance: key facts
- Like level-term life insurance, you agree on the length of your policy term with your provider when you take out the insurance.
- Increasing-term life insurance is designed to keep up with inflation. With increasing-term life insurance, both your premiums and your payout will be reviewed annually. Both are likely to increase over time to keep up with inflation.
Could life insurance help pay for your funeral?
It might not be something you want to think about, but when you’re looking at life insurance, it’s worth considering how much your own funeral could cost and how your family would pay for it.
Whole of life insurance guarantees a payout when you die, regardless of when that is. This means that your cover will never expire.
Whole-of-life insurance
There are a few different types of whole-of-life insurance:
- Over 50s guaranteed acceptance cover policies don’t require a medical check. Some come with the option to have the proceeds of your policy go directly towards paying for your funeral. There’s usually a 12-month cooldown period before you can make a claim.
- Whole-of-life pure protection covers you for life and starts straightaway, but you might have to go through medical checks to be accepted.
- Whole-of-life investment-linked policies give you the option of investing your premiums, either by letting you choose an investment fund or leaving the decision up to your provider.
*The types of illness covered by critical illness will vary between policies and providers.
