• What Is Life Insurance?

  The most popular kind of life cover is a level term policy, which pays out a fixed sum of money if you pass away during the life of the policy, for example within 18 years. The amount your dependents receive will be the same regardless of whether you die near the beginning or the end of the agreed period. If however, you reach the end of your policy and are still alive they won’t receive anything.

• How Much Does It Cost?

  The cost will depend on the amount of cover you want and the length of the term. Typically, policies will also be cheaper the younger you are, as insurers see you as less of a risk. It’s important to cover yourself for a long enough term, and if you have dependents, this is usually until at least the age at which they would leave full-time education.

• Who Do You Need To Provide For?

  Before you buy life insurance you need to think about who you’re providing for after your death. For those who have a partner or dependents, if they’d be financially affected when you pass away, life cover would be a good idea, as it will help them cover the mortgage, pay bills and provide food on the table if the worse was to happen. If you don’t have anyone that relies on you and your income then taking out a policy wouldn’t be worth it.

• How Much Cover Do You Need?

  Deciding on how much cover you require is one of the most important considerations, as you don’t want to take out too little cover and not leave them with enough money, but you also don’t want to be paying too high a premium if you don’t need to. The general rule is to buy a policy that pays out 10x the annual salary of your households main earner, but if you can’t afford this then stick with whatever you can. The cover should be enough to pay off outstanding debts (including your mortgage if there isn’t separate insurance), immediate costs that your dependents will need to cover, future costs (such as university) and expenses related to your death (like the funeral).

• Should You Get A Joint Policy?

  If you have a partner it can be cheaper to get a joint policy, but this will only pay after the first death, so you might want to consider having two single policies if you have dependents.

• Reduce Your Risk

  The more likely an insurer thinks you are of dying the more expensive your cover will be. Some of these factors can’t be changed, for example, if you have a pre-existing medical condition, and non-smokers will pay considerably less than a smoker. To be classed as a non-smoker an insurer will generally need you to be completely free from nicotine for a year or more, but it’s important to check the criteria, as some have raised this to five years.

• Fixed Premium Costs

  Premiums can either be paid on a fixed or reviewable basis. With a guaranteed premium you’ll know exactly what the monthly cost will be and the price will never go up. Reviewable premiums can seem cheaper at first, but the insurer can put up the price at a later date.

Life Insurance Jargon Buster

• Accidental Death Benefit

  A tax free lump sum paid out to your family if you die in an accident.

• Critical Illness Cover

  Critical Illness Insurance will pay you a lump sum if you are diagnosed with a critical illness during the term of the policy. Critical illnesses will be defined in the terms and conditions of the individual policy.

• Decreasing Term Insurance/Mortgage Protection Insurance

  The amount of money paid out in this type of insurance policy reduces over time. They are usually taken out to cover a capital repayment mortgage, so as you pay off the loan, the value of the insurance policy reduces at the same pace.

• Income Protection Insurance

  This type of insurance policy pays out a monthly amount if you are temporarily unable to work due to an accident or illness. It is designed to replace your income and can be used to pay household bills such as your mortgage, car repayments and energy bills.

• Joint Life Insurance

  This type of policy protects you and your partner.

• Level Term Insurance

  The most basic type of life insurance available in the UK. This type of policy pays out a lump sum should you die during the life of the policy. You pay a fixed monthly amount for an agreed amount of time.

• Whole Life Insurance

  Also know as permanent life insurance, this type of insurance policy stays in place until you die, whenever this may be.