Life Insurance, What Is It and Do You Need It?

Ian Lewis[1]

Ian Lewis

Money Savings Advice Life Insurance

Life Insurance helps to keep your family secure, ensuring they are financially supported if anything were to happen to you. This type of insurance, often called life or death cover, isn’t necessary for everyone, however, if you have children, a partner, or other family members who are financially dependent on you, it might be worth considering. 

What Is Life Insurance?

Life insurance is a type of cover that ensures dependents are financially supported in the event of the policyholder's death. It can be paid out either in one lump sum, or in regular instalments. This type of insurance can provide peace of mind that your loved ones will be looked after, even if you’re no longer around to provide for them.

The amount provided to your dependents will rely heavily on the type of cover you go for. As a life insurance policyholder, you will be able to decide how the pay-out is received (either a lump sum or instalments), and even what it can be spent on. For example, if you wanted the money from your life insurance to cover a mortgage or your dependents’ rent you can write this into the conditions of the pay-out.

What Types of Life Insurance Can I Get?

There are two main life insurance covers you can get, these being the following:

  • Whole-of-life policies
  • Term life insurance policies

As the name suggests, with a whole-of-life policy, you are covered for the whole of your life, and your dependents will be eligible for a pay-out regardless of when you die. This, however, is only the case provided that you keep up with payments on your premium.

In contrast to this, a term life insurance policy is when the dependents will only receive a pay-out if the policyholder dies within a fixed time frame – otherwise known as the term of the policy. This fixed period can vary, and can be taken out for as little as 5 years and as long as 25 years.

How Much Does It Cost?

The cost of life insurance will vary depending on the level of cover you go for as well as the details of your application. The following details of the applicant can have an impact on the price of life insurance:

  • Health
  • Age
  • Lifestyle
  • Whether you smoke or not
  • Details of the policy (e.g. the length and the amount that’s wanting to be covered)

When paying for life insurance, most policies will require monthly instalments, however, the exact details for the cost of cover will depend upon the policy and the provider. Therefore, it’s important to read the precise details of any potential life insurance cover, and make sure it works for your situation before taking it on.

What Is Not Covered by Life Insurance?

Whilst life insurance can help to financially support dependents in the event of the policyholder’s death, there are certain situations where a pay-out may not be available.

If the policyholder’s death was caused by alcohol abuse, their dependents might not be eligible for a pay-out; for example, if the policyholder died due to a car accident where they were intoxicated. This could be the case as insurers deem the fatal risks of drunk driving to be widely acknowledged, and therefore make any death caused by this, at least from the insurers perspective, self-inflicted. 

For those who have a serious health problem whilst applying for life insurance, the policy may have excluded this health condition as a cause of death that would result in a pay-out. It’s important to check the restrictions on any life insurance policy before agreeing to its terms. Helping you and your dependents to know where you stand for any and all eventualities.

It’s also worth noting that life insurance will only pay-out for the death of a policyholder, and therefore cannot offer support in the event of illness or disability.

Why Should I Take Out Life Insurance?

Whether or not you need life insurance will depend upon your own individual circumstances. Whilst life insurance is commonly taken out by those with children who want to make sure they are financially supported, this is not the only case where life insurance is applicable.

If you have anyone that is financially dependent on you, it could be worth considering life insurance. This cover can help to financially safeguard your loved ones in the event of your death, helping them to keep up with rent, mortgage payments, utility bills and more. It can provide both you and your family peace of mind that they would be taken care of if anything were to happen.

That being said, there are certain situations where you shouldn’t take out life insurance. For example, if you do not have anyone who is financially dependent on you, or if your partner earns enough to support your family in the event of your death, life insurance may not be necessary.  

To find out more about insurance options, why not visit our insurances section.

How Can Money Savings Advice Help You With Life Insurance?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Life Insurance brokers. They have already helped thousands of people get the best Life Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Money Savings Advice Author Ian Lewis

Ian Lewis

Ian Lewis is one of our specialist financial writers. Ian has over 15 years of financial writing experience, having worked for some of the largest financial publications in the UK covering topics from mortgages, equity release, loans and financial claims, to name a few.

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