Here, we explain why life insurance is easier to get hold of and more affordable than you probably think.
Busting the big myth about life insurance
There is a great deal of confusion around what life insurance (also known as life cover) is and who needs it. Thanks to Hollywood films, it’s often thought about as something only rich people need to worry about, but that’s a bit of a myth. Most people feel and understand the need to protect their loved ones should the unthinkable happen. A life insurance policy can be one of the best ways to do that as it aims to financially protect your loved ones if you pass away while covered.
What is life insurance and who is it for?
Simply put, life insurance is a financial product that enables you to leave behind money for your family if you die while covered. The money could then be used to support them in a variety of ways. It can replace the regular income they will lose when you pass away, or could go towards paying off a large debt such as your mortgage. You can pay for life insurance in a single lump sum payment, but it is more common to pay in monthly instalments.
Why do ‘normal’ people take out life insurance?
You don’t have to be super wealthy to take out life insurance. If you have dependants such as a spouse or children who rely on you financially, life insurance could be the lifeline they need if you pass away. Your loved ones could use the money for a variety of things, for example, to help with household bills or to cover your mortgage amount.
By taking out a life insurance policy and making the monthly payments, depending on your type of policy or cover, you can give your family peace of mind knowing that they’ll receive a lump sum to help with financial obligations after you die.
What to consider when taking out life insurance:
- the type of cover that's most suitable for you
- the length of the policy
- how much cover you need
The different types of life insurance
There are various types of life insurance to choose from, so it is important to select the most suitable for your circumstances. Your age, health, lifestyle and how much cover you need will all determine how much you pay.
Level term life insurance cover
Level term insurance is probably the most common and the most straightforward type of life insurance. It lets you choose the amount you want to be insured for and how long you want the cover to last. If you die within the term, the policy pays out to your loved ones. If you survive the policy, your money will not be returned. The amount you're covered for remains the same throughout the term.
To give an example, you might set a level term life insurance policy at 20 years with an £80,000 payout. This would mean that if you died at any time during that 20-year term, your loved ones would receive £80,000. It doesn't matter if you die after the first year or in the last year of the policy. The payout would be the same.
Decreasing term life insurance cover
With decreasing term life insurance, the amount you’re covered for decreases over the term of your policy. Your monthly payments remain the same, so you know exactly what you are paying each month. Typically, these policies are used to cover a debt that reduces over time, such as a repayment mortgage.
Critical illness insurance
Critical illness cover can be sold on its own, as an optional extra alongside life insurance. It’s meant to help your family in the event you develop a serious health issue. If you are diagnosed with a critical illness defined in your policy, your family could receive a lump sum payment.
Isn’t it better to set money aside for savings rather than buy life insurance?
Putting money aside for a rainy day is different from buying life insurance as they cater for different circumstances. Think of term life insurance as a practical addition of a wider financial plan. With a level term policy, cover starts immediately for the full amount of the policy. So if, for example, you took out £80,000 cover, your family would be covered immediately for that amount. Most savings accounts are designed for rainy days like fixing a broken down boiler or car, and probably wouldn’t offer your family the same level of financial protection as life insurance would, in the event of your death.
If you thought that life insurance was only for rich people, think again. With the range of cover available, your family can be protected and have money to help with them with bills and other living expenses in the event of your death.
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