Life insurance is something we often put off thinking about, but is something we all need to consider having. Life insurance (sometimes referred to as life cover or death cover) gives you peace of mind that, should something happen to you, those you leave behind will be financially taken care of.
Today, we’ll guide you through the questions you need to answer to decide if life insurance is something you need or that would give you more peace of mind.
First, what is life insurance? What does life insurance do?
Life insurance is insurance that will help protect your family financially when you die. If you are the main earner, you may spend time worrying about what would happen to your family if you were no longer around to pay the bills. Life insurance will ensure your family are taken care of.
The size of pay-out your family will receive depends on the cover you’ve bought, but the sum may pay for things like:
- Funeral expenses
- Paying off outstanding debts, possibly including a mortgage
- Giving them additional income while they adjust to life without you
What types of life insurance policies are there?
There are two types of life insurance policies:
- Whole-of-life policies: these policies pay out no matter when you die, provided you pay your premiums.
- Term life policies: these policies are for a fixed amount of time, such as 5, 15, or 25 years. These policies only pay out if you die during that term, and you won’t receive any money if you don’t pass away.
Do I need life insurance?
To decide if life insurance is something you need, answer the following questions:
- Would a pay-out affect other benefits my dependants receive? If your pay-out is large enough, the fact that it may make them eligible for other benefits won’t be a problem. It also may help make their lives easier in other areas (such as paying off debt or a mortgage), so it’s worth thinking about it seriously before making a decision.
- Am I worried about what would happen if I pass, if I lose my source of income, or both? Life insurance only covers you if you pass away. If you fall ill, even terminally ill, but don’t pass during the term of your insurance, it won’t cover you. If you are concerned, look into income protection insurance or critical illness cover, and consider having multiple policies.
- Do you have young children, disabled family members, or frail family members? If you have vulnerable family members, life insurance is a good way to protect them to ensure they can maintain their quality of life even if you pass. This may help them pay for bills or help anyone who becomes their guardian to manage the financial burden.
- Can my family afford the funeral I desire? Funerals are expensive. The average cost of a funeral in 2020 was £4,184, and the overall cost of dying was a whopping £9,263. For many families, this is a cost they will struggle to cover, and can cause even more emotional stress than the distress of losing you.
- Do you have a pension that covers your partner? Some pensions have a policy of continuing to pay the deceased’s partner until their death. These pensions offer financial stability, but they are increasingly rare. If your pension won’t cover your partner, life insurance is a good way to protect them.
- Are you single with financially-independent adult children? If so, life insurance may not make sense for you. If you want to cover your funeral expenses, it may be best to simply put money aside if you have the ability to do so.
- Is your partner is the main income earner and/or makes enough for your family to live comfortably? If so, life insurance may not be necessary. Any partner or family member will be able to find comfort in a lump sum, but if you have the income, simply save it.
- Does your employer offer “death in service” cover as part of your package? It’s worth looking at your benefits again if you aren’t sure if they offer you cover as part of your employee package. Death in Service benefits pay your partner a multiple of your salary after your death. This is sometimes in a lump sum, but often continues to be paid on your pay day each month.If you’re not sure, it may be worth asking HR if they offer any benefits of this kind.
Should I get term life insurance of whole-of-life insurance?
What policy you choose to get depends on your budget and individual circumstances. If you can, whole-of-life offers the most coverage, and should guarantee your family financial security when you pass. However, there is no one-size-fits-all answer, so it’s always a good idea to talk to an expert to ensure you understand fully what would be best for you.
Our life insurance policies provide you with the security of knowing your family will be taken care of when you pass. Our policies can also include stress-relieving policies such as critical illness cover, income protection, funeral plans, and more. Click here to find out more, or call one of our friendly team members on 0161 537 055 to discuss your options.