Many people mistakenly believe they don’t need to invest in a life insurance policy because they are young, in good health or financially stable. But think again—what would happen if an accident or unexpected illness resulted in your death? How would your financial dependents (eg husband or wife, children, siblings or parents) cope?
How would you make sure your loved ones could still manage to afford long-term living expenses (eg household bills, education costs, debts or loans, and mortgage payments)? Who would be able to pay for your funeral costs?
Indeed, life insurance is different from other forms of cover. This type of policy goes beyond protecting just you—it continues to provide stability and support to your loved ones even when you no longer can. And while certain health or financial characteristics may reduce your risk of needing to make a claim, the reality is that everyone—especially your family—can benefit from the assurance of a life insurance policy.
Don’t run the risk of your loved ones struggling to pay the bills following your unexpected death. Use this guidance to learn the basics of a life insurance policy and understand the benefits of cover.
What Is Life Insurance?
At a glance, life insurance provides protection to your financial dependents in the event of your sudden death. While life insurance typically only covers death, you can also include critical illness cover as part of your life insurance or as a separate policy. The most common reasons for taking out a life insurance policy include:
- Getting married or having a child
- Buying a house or car
- Beginning a new job
- Applying for a mortgage or loan
How does Life Insurance work?
This type of cover comes in two main formats—either as a whole life policy or as term insurance. The whole life format lasts for your entire lifetime and pays out whenever you die. On the other hand, term insurance pays out only if you die during the policy period—which can last from a couple of months to several years.
While whole life is typically the most common format, term insurance can be beneficial if your purpose for purchasing life cover was for protection during the period of a mortgage or loan payment plan.
A life insurance policy can be paid out either as a cash lump sum or as an annual income. The sum insured can be one of the following:
- Level—The sum remains the same for the duration of the policy term.
- Increasing—The sum rises each year, either based on inflation or due to specific life events (eg having a child, getting married or increasing mortgage).
- Decreasing—The sum goes down each year, either to line up with your lowered financial liability (eg a child growing up and moving out) or to match your mortgage payments.
In terms of the price of your policy, life insurance premiums are typically determined by these key characteristics:
- Age, gender and lifestyle habits (eg how physically active you are, and whether or not you smoke)
- Current health status and medical history
- You will likely have to supply medical records or supplementary information, such as a GP report, paramedical (brief health test usually carried out by a nurse who measures height, weight and blood pressure), and non-invasive health screening results (eg saliva swaps, hair samples or urine tests).
- Occupation and other hazardous pursuits or hobbies (eg flying a plane, bungee jumping, off-roading, scuba diving or horse riding)
What are the Benefits of Life Insurance?
Despite how crucial life insurance is to assure your loved ones remain financially stable and supported in the event of your premature death, recent research from insurance experts revealed only 42 per cent of parents and 38 per cent of cohabitees (partners purchasing a home and making mortgage payments) have taken out life insurance.
Common reasons for not purchasing a life insurance policy include thinking the cover is unnecessary (35 per cent), not being able to afford it (19 per cent), and not having thought about it (18 per cent). However, life insurance provides benefits that both you and your family simply can’t afford to ignore.
In fact, recent statistics found that there were over 35,000 life insurance claims paid out to UK individuals in 2017, totalling £2.7 million in payments and an average of £78,300 for each claim. That resulted in a 98 per cent rate of new claims paid. Without a life insurance policy in place, you are quite literally taking much-needed money out of your loved one’s pockets in the event of your sudden death. Do you really still think it’s not worth it?
You and your loved ones deserve the assurance that life insurance can provide. Whether it be paying for your home, covering monthly expenses, ensuring your children can afford to attend university or keeping your partner financially sound in the midst of an unexpected loss, this form of cover is vital to protect the future of your family.