What is Life Insurance?
Life insurance (sometimes referred to as ‘life assurance’) is designed to make sure your dependents, such as your children or a partner, will be financially looked after in the event of your death.
Do I need life insurance?
Life insurance will be suitable if you have:
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children
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a partner who relies on your income
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a family living in a house with a mortgage that you pay
You don’t need life insurance if:
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you’re single
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your partner earns enough for your family to live on
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you’re on a low income and could qualify for benefits.
How does it work?
Life insurance pays out either a lump sum or regular payments on your death, giving your dependants financial support after you’ve gone.
The amount of money paid out depends on the level of cover you buy.
You decide how it’s paid out and whether it will cover specific payments - such as mortgage or rent - or if it’s to leave your family with an inheritance.
What are the different types of life insurance?
Each of the policies can be taken out as a joint policy with a partner, or a single person one.
If you take out joint life insurance, the money will go to the surviving policyholder, usually your spouse.
If you take out single life insurance, the money goes into your estate, and you will need to decide who inherits this.
A joint life policy is usually more affordable than two separate single policies. However, joint life cover only pays out on the first death. Whereas buying two single policies would pay out on each death.
Term life insurance policies
These policies run for a fixed period of time(known as the ‘term’). This is usually something like five, ten or 25 years. They only pay out if you die during the policy.
There are three kinds of term life policies:
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Level - the level of cover stays the same and will pay out a lump sum if you die within the agreed term. This is the most simple and affordable option.
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Decreasing - the level of cover reduces each year. It’s designed to be used with repayment mortgages, where the outstanding loan decreases over time.
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Increasing - the level of cover rises over the term to keep up with inflation.
Whole of life insurance policies
Whole of life policies pays out no matter when you die if you keep up with your premium payments.
They’re often used to help with a funeral or for Inheritance Tax planning.
They’re typically more expensive than shorter-term policies. There’s also a possibility that if you live longer than you expected, you could end up paying more in than you’ll get out.
Three things to think about when buying life insurance
1. Be honest about your medical history
It’s important to give the insurance company all the information they ask for. When you make a claim, they will check your medical history. If you didn’t answer truthfully on your application they may not pay out.
2. Read the small print
Make sure you know what’s included in your policy. Be aware that definitions and exclusions can vary between different insurers.
3. You can change your mind
You usually have 30 days from buying the policy to change your mind. So, if you find a better deal elsewhere, you can get a full refund within 30 days.
Page last updated: May 2023.
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