WHAT IS LIFE INSURANCE?

How does life insurance work?

Life insurance works by giving your family money after you pass away. They can get this money all at once or in smaller amounts over time. This helps them with money stuff when you’re not there anymore.

How much money they get depends on what kind of plan you pick and how much coverage it has.

You can choose how the money is given to your family. It can help pay for things like your house or rent, or you can leave it as money for them to have later on.

What types of life insurance are there?

There are two main kinds of life insurance:

Term life insurance policies

These last for a set time, like 5, 10, or 25 years. They only pay out if you die during this time.

The types of term policies are:

• Level: Pays a fixed amount if you die within the term. The payout doesn’t change. It’s straightforward and usually the cheapest.
• Decreasing: The payout gets smaller each year. It’s good for paying off things like a mortgage that decrease over time.
• Increasing: The payout grows over time to match rising costs of living (inflation).

Whole of life insurance policies

These pay out whenever you die, as long as you keep paying the premiums.

• Often used for funeral costs or Inheritance Tax planning.
• They cost more than term policies. If you live a really long time, you might pay more into the policy than what will be paid out.

Over 50s life cover

Over 50s life cover policies will definitely pay money to your family when you die. But, they might not always be the best deal because sometimes you pay more into the policy than what your family will get out of it.

Also, the Financial Conduct Authority has said that some ads for over 50s plans can be confusing. They make people think they’re getting a policy that will fully pay for their funeral, but that might not be true.

Single or joint policy life insurance?

You can pick either a single policy just for you, or a joint one that covers both you and someone else, like your partner.

• Joint Life Insurance: If one person dies, the other person (like your spouse) gets the money, unless you’ve set up something different.
• Single Life Insurance: If you die, the money becomes part of your stuff (your ‘estate’) and you decide who gets it.

A joint policy usually costs less than having two separate ones for each person. But, remember, it only pays out once after the first person dies. If you have two separate policies, there will be money paid out when each person dies.

Do you need life insurance?

Life insurance gives money to your family when you die. It’s not for when you can’t work because of illness or disability. It’s a good idea to have it if you:

• Have kids who depend on you.
• Have a partner who needs your income.
• Pay a mortgage for a house where your family lives. The insurance can help them if you’re gone.
• Want to make sure there’s money for your funeral.

You might not need it if:

• You’re single and no one depends on your income.
• Your partner makes enough money for your family.
• You don’t make much money and could get government benefits.

Check if your job already gives you something like this. Some jobs have ‘death in service’ benefits tied to your salary. If it’s enough, you might not need another policy. But if you leave that job, you lose that cover.

Also, think about if getting life insurance money could change any government benefits your family might get without it.

How much is life insurance?

The price of life insurance can change based on different things, but it’s usually seen as good for the money you spend. You can get a policy that gives your family good financial support starting at just a little bit each day.

What you pay each month depends on:

• How Old You Are
• Your Health
• How You Live (like if you exercise)
• If You Smoke
• Health Problems in Your Family
• How Long You Want the Policy For
• Your Job (risky jobs might cost more).

The cost also changes based on how much cover you get. To figure out how much you need, think about:

• Any Debts You Have
• Your House Payments or Rent
• How Many People Rely on Your Money
• Your Take-Home Pay or Other Money You Get

How do I buy life insurance?

The cost of life insurance can be different from one place to another, so it’s a good idea to look around and compare prices.

You can find life insurance quotes at:

• Banks
• Insurance Brokers: They can help you find the right policy.
• Comparison Websites: Great for seeing different options side by side.
• Insurance Companies: Some sell directly to you.
• Credit Card Companies
• Financial Advisers: They can give you advice on what to choose.
• Stores: Even some big supermarkets offer life insurance.
• Mortgage Providers: When you get a mortgage, they often offer life insurance too, but you might find a better deal somewhere else.

Checking out all these places can help you find the best price for your life insurance.

How to cancel life insurance

You can cancel your life insurance whenever you want, but keep these things in mind:

• Cost of New Cover: If you get a new policy later, it might cost more because insurance usually gets more expensive as you get older.
• Health Conditions: If you already have health issues, a new policy might not cover them.
• No Going Back: Once you cancel, you can’t restart the same policy.

Usually, there’s no fee to cancel. You just stop paying the premiums. But, you won’t get back any money you’ve already paid in.