Not everyone needs life insurance, although if you have family members who depend on your income to pay the regular household bills then it is highly advisable. A life insurance policy will pay your dependants either a lump sum, or monthly payments if you die during the term of the policy. Your surviving relatives can then use this money to pay for bills such as mortgage payments, loan payments, and to fund childcare arrangements, if necessary. A life insurance policy gives you peace of mind that if you die unexpectedly your family will not suffer financial hardship. The amount of money your family will receive depends on the level of cover you take out.
Basically, there are two main types of life insurance; term life insurance policies, and whole of life policies. Term insurance policies run for a specific period of time, for example, ten, fifteen, or twenty years; you decide how long you wish the policy to run for when you take it out. Many people choose a policy that runs until their mortgage is due to be paid off, or when their children will become financially independent. A whole of life policy, as the name suggests, runs until the day you die as long as your premiums are up to date.
When you take out a life insurance policy you need to read the terms and conditions carefully to find out what is, and what is not covered. Bear in mind that a life insurance policy only pays out in the event of your death, and not if you become sick or disabled.
The majority of policies also have a list of exclusions, for example, your family will not receive a payout if you die due to alcohol or drug abuse. In addition, if you already have a serious health problem when you take out the policy you may find that it excludes any cause of death directly related to this illness. Similarly, if you like to engage in sporting activities that are deemed to be a high risk you may also be asked to pay extra to ensure that you are covered.
As a general rule of thumb it is important to take out a life insurance policy if you have dependants, for example, school age children, a partner who relies on your income to pay household expenses, and if you have a family who live in a house where you pay the mortgage. You might also want to consider taking out a small life insurance policy to pay for your funeral expenses. You can probably give life insurance a miss if you are single with no people who rely on you financially.
The cost of life insurance is based upon a number of different factors so can vary considerably between providers. It certainly pays to shop around, but make sure when comparing quotes that you compare policies on a like for like basis.
Your insurance provider will take into account your age, your lifestyle, your current state of health, whether you are a smoker, and the length of time you wish the policy to run for, when calculating how much you will need to pay for your premiums. It definitely pays to take out life insurance when you are young as the cost of cover increases with age; the older you are, the more of a risk you present.
Before you take out life insurance, it may sound obvious, but make sure that you do not already have a policy in place. Some employers offer death in service cover as part of their benefits package. However, this type of policy may not be sufficient to meet your financial needs in full, and also will expire should you stop working for your employer, so you may need an additional life insurance policy to top this up.
If you are unsure whether life insurance is the best fit for your current financial situation then it often pays to consult with an experienced financial advisor, or insurance broker, who will discuss your situation with you in full and come up with a viable solution.
A life insurance policy is there to protect your loved ones when you die. It may also be wise to look at other types of insurance that offer protection whilst you are still alive. There are other types of insurance policies available including income protection insurance, which provides regular payments should you become unable to work due to sickness or injury, critical illness insurance, which pays out a lump sum should you be diagnosed by a critical illness stipulated in the policy terms and conditions, and payment protection insurance which will cover the cost of certain outgoings if you are unable to work due to ill health, or redundancy.
Not everyone needs life insurance cover, but if you do have family who rely on you financially it is certainly important that you take out a policy to safeguard your family’s financial future, and to ease the financial burden during what would be a period of significant distress and upheaval in the event of your death.