What is life insurance?

Life insurance is a form of cover which you can acquire for varying lengths of time, in order to ensure that your dependents are paid out in the event that you die. As such, the most common reason that individuals usually take out a life insurance policy, is to ensure that their deceased loved ones are given the financial support they need to cover the immediate expenses that they would have to address alone.
The money acquired from a life insurance payout can be utilised in order to clear off outstanding liabilities, such as a mortgage or personal loan, or to meet day-to-day expenses. In certain cases, it might even be used to meet the costs of the deceased’s funeral.

Are there different types of life insurance?

Yes. There are currently four primary types of life insurance, which are varyingly suited to people of different situations and household financial dynamics. These are:  Level Term, Decreasing Term, Whole-of-Life and Family Benefit Insurance.

How do the different policies work?

Whole-Of-Life

Your dependents will be paid out a lump sum whenever you die.

Level Term

Your dependents will be paid out a fixed sum, if you die during your insurance term

Decreasing Term

The amount your dependents will be paid out will fall as your term progresses

Family Benefit Insurance

The amount your dependents will be paid out will fall as your term progresses, though they will receive the payout in intervals upon your death, rather than one lump sum.

How much will i need to pay for my Life Insurance?

The amount you are required to pay each month on your life insurance policy will range between suppliers and products, though the universal elements your insurer will consider are:

  • The amount of money you are assured for
  • The duration of your life insurance term
  • The additional cover you purchased

There are also personal attributes specific to you which will influence the amount you pay. These include:

  • Your height and weight
  • Your personal medical records
  • Your family medical history.
  • Your marital status
  • Your job
  • The number of dependents you have
  • Your age
  • Your alcohol consumption and smoking status
  • Your hobbies

Does Life Insurance cover all conditions

No, and different providers will offer policies which cover you for a ranging set of diseases. You will need to evaluate the small print of your policy before signing anything in order to ascertain whether the illness you wish to be covered for is included in your life insurance. You should also identify whether there are any exclusions specified on your policy document, because certain providers will not pay your dependents out in the event that you die from a vice-related incident.  

How do i pay for Life Insurance?

Usually, your life insurance provider and will collectively determine a fixed value to pay into your life insurance ‘premium’ each month, though you could change this payment rota, depending on which provider you are using.

Can i take out Life Insurance for my wife?

A number of married partners decide to pay for joint life insurance, which enables them to take out a policy covering both of them whilst only having to deal with a single set of paperwork. The costs of joint life insurance are often less expensive than the overall price that a family would have to pay if they took out to separate life insurance policies. However, it should be remembered that a joint life insurance policy will only pay out a single time, which is when the first co-policyholder dies. After this, the other partner will need to take out a new policy, which could be more costly for them due to their higher age and declining health.

Can i reduce the amount i stand to pay on my Life Insurance?

One of the most simple ways to reduce the amount you pay on your life insurance is to take it out younger, because provider’s will almost always charge you more the older you get as you constitute higher risk to them. However, if you do have any dependents, then it is not worth considering life insurance at the moment, irrespective of how old you are.

You could also take proactive steps to live a healthier lifestyle, which will obviously reflect in your weight and vice disclosures. By quitting smoking, or going on a diet, you may find that life insurance providers are prepared to give you cheaper premiums, because you again will constitute less risk for them.

Does my gender influence the amount i will pay on my Life Insurance?

No, though this has only been the case since 2012, when the European Court of Justice gender directive ensured that both men and women are subjected to the same criteria by life insurance providers. Previously, women had enjoyed lower life insurance costs, due to the fact that they had a higher average life expectancy.

How do i determine how much i need to be covered for?

In order to calculate how much to be covered for, simply add up the total value of all your debts at present, and add this figure to the amount you believe your funeral will cost. You should then decide how long you want to cover your family for and multiply the amount you believe you spend on your expenses each month by this figure. This will alert you of how much your dependents will need to be covered for to meet your household’s expense payments each month. You should then add the value of your debt, the amount you believe your dependents need to covered for with their expenses,  and your forecasted funeral costs, to give you the final figure of how much to be covered for.

How do i determine the insurance term for my policy

The best way to identify how long to insure yourself for, is to evaluate your personal situation, and determine your primary motives behind acquiring the policy in the first place. If you are doing it to cover your mortgage debt, then you should choose a loan term which reflects your mortgage term as well. Similarly, if you have children, then you might want to insure yourself for a period which runs until they turn 18.

What happens if i miss one of my Life Insurance payments?

If you miss one of your life insurance payments, then the repercussions for doing so will be dependent on the provider you are using. Certain organisations will be relatively lenient with their policyholders if they miss a payment, and will either impose a small fine or ask for payment as soon as possible. However, other providers will be supremely strict about late payments, and could decide to impose heavy fines or even terminate the policy arrangement altogether, if a policyholder frequently misses payments.

Is it possible to cancel my Life Insurance policy?

Yes, though you will have to do so within 30 days of your initial acquisition of the policy. Under official Financial Conduct Authority (FCA) regulations, all providers are required to give a policyholder a refund for the amount they have paid into their premiums up until the point of cancellation, as long as they terminate the arrangement during the first 30 days of holding it.

Is it possible to obtain Life Insurance through my work?

Certain workplaces provide their employees with a premium called the death-in-service benefit, which usually ensures that the member of staffs dependents are paid out four times their yearly income if they pass away whilst still on the company books. If you have this type of life insurance already, then it may not be worth getting further cover, though this will be dependent on the amount of cover you believe your dependents require.

Are there any benefits to look out for when getting Life Insurance?

When taking out a policy, it would be worth looking out if your provider offers the following:

Whole-Of-Life

Your dependents will be paid out a lump sum whenever you die.

Level Term

Your dependents will be paid out a fixed sum, if you die during your insurance term

Decreasing Term

The amount your dependents will be paid out will fall as your term progresses

Family Benefit Insurance

The amount your dependents will be paid out will fall as your term progresses, though they will receive the payout in intervals upon your death, rather than one lump sum.

I am currently suffering from a medical condition. Can i take out Life Insurance?

If you are suffering from a medical condition already, then it can be exceedingly difficult to acquire a low cost life insurance premium. Certain insurers will reject your application for a policy outright, whilst others will exclude the condition from your premium, which would mean that your dependents would not be paid out if you succumbed to your existing ailment.

There are special types of insurance providers which supply policies to individuals with pre-existing medical conditions, though you will need to be prepared to pay far more on these in order to make an acquisition.

I am currently suffering from a medical condition. Can i take out Life Insurance?

If you are suffering from a medical condition already, then it can be exceedingly difficult to acquire a low cost life insurance premium. Certain insurers will reject your application for a policy outright, whilst others will exclude the condition from your premium, which would mean that your dependents would not be paid out if you succumbed to your existing ailment.

There are special types of insurance providers which supply policies to individuals with pre-existing medical conditions, though you will need to be prepared to pay far more on these in order to make an acquisition.

What is Critical Illness Cover

Critical illness cover is something you can obtain on top of your life insurance policy or separately, which will ensure your dependents are paid out a tax-free lump sum of cash in the event that you are diagnosed with a medical condition included within the cover.  Whilst taking out critical illness cover with your life insurance will make the overall costs less expensive, you should keep in mind that doing so will limit the amount of payouts you receive to just once.

Will my dependants be required to pay tax on their payout sum?

Yes, but only on inheritance tax, as all payouts are protected from capital gains and income tax. However, setting up a trust fund can bypass this problem, and you should think about setting one up if you decide to take out a life insurance policy.

Can i change my policy after i have taken it out?

Most providers will allow you to make modifications to your policy, though this could result in the costs of your premiums rising. You should alert your provider of any circumstantial changes in your life, and conduct a review with them each year in order to update your premium accordingly. For example, if you have another child, then the amount you will want to be covered for will likely rise, so you should keep your provider updated with your personal developments in order to ensure that you are adequately covered.