The idea behind life insurance is straightforward – you pay into your policy and, if you die and meet all the policy terms, your family will receive a payout. But not all life insurance policies are the same, so you’ll need to find a policy that suits you and your family’s needs.
Here is a guide to life insurance – with all the things you need to know – from life assurance specialist website Home & Life.
The importance of life insurance
So why is life insurance important? Well, it could be a valuable financial safety net for your loved ones if you were no longer there to provide for them.
If you were to die, your family would need time to cope and adapt – but your mortgage, bills and debts would still need paying, and your children would still need support. A payout from your life insurance policy could help them to get by financially during an otherwise difficult time.
If you don’t have enough savings in place to support your family after your death, life insurance could be the best option. And even if you do have a lot of savings, it might still be worth getting life insurance. Your monthly payments are likely to be relatively small compared to the payout your family could receive – and then your family can use the savings however they wish.
Life insurance can last for different amounts of time
If you choose a term-based policy you can decide how long you want it to last for – for example 20 years. Alternatively you could opt for a whole-of-life policy, which will cover you for the rest of your life as long as you keep up with your payments.
The nature of the payout can differ
Different life insurance policies work in different ways – and in some cases the size of the potential payout could change.
Level-term life insurance involves making a payment each month in return for a fixed potential payout. The size of the payout, and your monthly payments, will stay the same throughout your policy. So you could decide to pay £5 per month for 20 years for a payout of £100,000 (this is just an example – the amount of cover you’ll receive and the amount you pay each month will depend on a number of personal factors).
If you choose decreasing-term life insurance, however, the size of your potential payout will decrease gradually as your policy continues. This may seem strange – why would you want your loved ones to receive less as time goes on? Well, many financial commitments – like your mortgage and the cost of raising children – also decrease over time. So a decreasing-term policy can be set up to decrease in line with your outstanding mortgage or childcare costs.
Decreasing-term policies are usually cheaper when compared with the equivalent amount of level-term cover – and you’ll only be paying for as much insurance as you think your family will need at any given time.
Things that affect the cost of life insurance
One main factor that affects the cost of life insurance is the size of potential payout you want. If you want a larger payout, you’ll have to pay more per month. Some personal factors can affect the cost of life insurance too – for example:
- Your age. Older people tend to pay more for their life insurance than younger people – which is why it could make sense to buy it earlier rather than later.
- Whether you’re a smoker or not. Statistically smokers die earlier. For this reason, smokers can usually expect to pay higher premiums than non-smokers. Remember that different insurers have different ideas of what a ‘smoker’ actually is – i.e. you could be classed as one if you’ve had any tobacco in the past year, even if you’re not a regular smoker.
- Medical history. If you’ve got any serious conditions on your medical history (or your family’s history) then you may have to pay more for your insurance.
- Some insurers also take your BMI into account when calculating your premiums.
If you think you might be charged more for your life insurance because of the above factors, it’s all the more important to shop around. You could find more affordable life insurance deals than you think.
You could make your life insurance cheaper
There are some ways you could possibly make your life insurance premiums cheaper. Insurers generally base your premiums on how likely it is that they’ll have to make a payout on your policy. So improving your lifestyle and becoming healthier can help you cut your costs. Quitting smoking is one of the steps that can make the biggest difference. If your insurer considers BMI in their calculations, you could also consider making sure that you’re a healthy weight. If you already have an insurance policy you can contact your insurer and tell them about your lifestyle changes – and they might decrease your premiums as a result.