If you've ever had a question about life insurance – whether that’s what life insurance covers, how it works, why it’s necessary or how much it costs – you've come to the right place.
Life insurance is not something that only rich people need to worry about. Regardless of your finances, most people want to be able to protect and care for their loved ones when they die. Taking out an insurance policy is one of the best ways to do this – and it needn’t cost you the earth either.
Here, we’ll break down everything you need to know about life insurance, so you can decide whether it might be a good idea for you and your family.
How does life insurance work?
Simply put, life insurance is a financial product that lets you leave behind money for your family if you die while your insurance policy is still valid. This money can be used to support them in a variety of ways: it can replace the regular income they will lose when you pass away, or it could go towards paying off a large debt such as your mortgage.
What does life insurance cover?
The coverage your life insurance provides will depend entirely on what type of policy you take out. Some policies will leave a sum of money to your family, while others might protect your mortgage.
Another common question is “does life insurance cover funeral costs?”. As most policies leave your loved ones with a fixed amount of money, they have the option of using it to cover your funeral arrangements after you pass away.
How much does life insurance cost?
There are many factors that go into calculating how much your life insurance will cost. You could choose to go through a financial adviser who will draw up a personalised plan for you. Alternatively, you could purchase and manage your policy directly with your chosen insurance provider.
How much you pay will also depend on the type of life insurance you take out and how long you need it for. This could be a few years or 25 years – the choice is yours. Consequently, your life insurance payments can range from about £10 a month to a few hundred.
Find out more about our level term life insurance.
How long does life insurance last?
The length of your policy is something you’ll decide when you purchase your cover. Most policies are valid for between five and 25 years. This means that if you die within that term, your family will receive a pay-out (the sum of which will be decided when you first take out your policy). If you die and your policy has already come to an end without being renewed, they’ll receive nothing.
What happens if I outlive my life insurance policy?
If you outlive the length of your term life insurance policy and you don’t renew after it ends, you will no longer be covered. If you need further coverage after your term policy expires, you might be able to buy a new life insurance policy or a term conversion policy, though it’s best to consider your options before your current policy ends.
How do you claim on a life insurance policy?
Claiming on a policy can be a different process depending on which provider you go through. In general, making a claim will follow these three basic steps:
- The policy owner dies
- The family or beneficiaries contact the insurance company
- The insurance company guides them through what is needed to pay out the money to the beneficiaries.
How long a life insurance claim takes depends on how straightforward or complex the claim is. Typically, this can take anywhere between two weeks to two months.
Do I still need life insurance if I’m a single parent?
Leaving money for your kids after you’re gone is often a big priority – especially for single parents. That’s because your life insurance could help pay for your children’s upkeep. As well as their everyday needs, a life insurance pay-out can be used to cover university costs, driving lessons or even provide them with money to put towards buying their first home.
Life insurance can also be used to clear any outstanding debts you might have (including your mortgage), and go towards paying your funeral costs. However, it’s worth bearing in mind that a life insurance pay-out could affect the eligibility of your children for means-tested benefits.
If I’m single with no children, what’s the point of taking out life insurance?
If you’re single and have no kids, you may think you don’t need life insurance. However, there are times when it can be beneficial. For example, taking out a plan simply to cover the cost of your funeral can help reduce what could be a huge financial burden on your loved ones.
Similarly, some types of life insurance, such as income protection or critical illness, can give you a little extra financial support when you need it the most.
Isn’t it better to set money aside than buy life insurance?
Putting money aside for a rainy day is different to buying life insurance as both options cater for different circumstances. Think of term life insurance as a practical addition to a wider financial plan. With a level term policy, your cover will start immediately for the full amount of the policy. If, for example, you took out an £80,000 policy, your family would be covered immediately for that amount if you suddenly die.
By contrast, most savings accounts are designed for unexpected expenses such as fixing a broken-down boiler or your car. The amount you save probably wouldn’t offer your family the same level of financial protection as life insurance would.
What’s more, with the range of cover available, your family can be protected and have money to help them with bills and other living expenses in the event of your death.
Is it true that life insurance companies don’t like paying out to beneficiaries?
In 2021, 98%[i] of insurance claims were paid, a figure unchanged from 2019. Despite this, there is still a misconception that insurance companies don’t pay out. In cases where they don’t, it’s usually due to irregularities during the application process. For example, perhaps the policyholder downplayed or omitted a medical condition when they first took out the policy.
If you’re thinking of taking out a plan, it’s a good idea to discuss your concerns with your intended provider or adviser before getting your policy. Legitimate providers and advisers are registered with the Financial Conduct Authority (FCA), so you can be sure that you’re getting the right advice and product for you.
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