A life insurance policy is a contract between you and an insurance provider. Put simply, life insurance is a way to ensure that your family or loved ones will be financially secure if the worst happens and you are no longer around to provide for them.
Arranging a policy can give you peace of mind and provide much-needed financial security for your family.
How does life insurance work?
You pay regular premiums on a monthly or annual basis. In return, the life insurance company promises to pay out a cash sum if you die while the policy is active, provided you meet all of its terms and conditions.
As with every insurance type, it is essential to read the terms and conditions. Every provider has its own set of policy conditions and exclusions. For example, if death occurs through suicide, a drug overdose or a “risky or reckless act” a lot of providers will refuse to payout. It is always best to take the time to read through your policy documents and ask your chosen life insurance company for clarification if there's anything you don't fully understand.
How much life insurance do I need?
The key questions you need to ask yourself in order to determine how much life insurance cover you need are:
How many people are financially dependent on you?
How much would your death impact them?
Do you have a mortgage you need to cover?
Do you or your family have other debts?
Do you have savings your family could use?
Is there any future spending you need to plan for, e.g. education costs for your children?
What unforeseen costs might arise, for example, the cost of arranging a funeral?
What death-in-service benefits does your employer offer if any?
What's the average cost of life insurance
Life insurance costs around £10 a month on average based on quotes we got in October 2018 for a 35-year-old with a clean medical history who doesn't smoke and is a very light drinker. Remember that your actual premium will depend on your policy and the amount of cover it offers, and personal circumstances such as your age and whether you smoke or have any pre-existing medical conditions.
It is possible to pay more than this if you are over 50 or suffer from a medical condition. Aviva allows older customers to choose a monthly premium from between £7 and £50 a month. In this case, the more you pay, the larger the life insurance payout. If you add critical illness cover it will increase the cost of your cover, sometimes by a similar amount to the life policy.
Most life insurance premiums are fixed so the monthly premium will never increase. Life insurers should tell you how long it will take for you to pay as much in premiums as the policy will payout when you die. It is always worth shopping around and making sure you're fully informed about what you're paying for.
Types of life insurance
Instead of simply looking for the cheapest life insurance you can find, it’s important to work out which type of life insurance is right for you.
Here’s a list of the key types of life insurance, all of which we will explore in more detail.
Level term life insurance
Decreasing term life insurance
Over 50s life insurance
The whole of life insurance
Funeral cover
Life insurance with critical illness cover
Term life insurance
Term life insurance can often offer the best value for those looking for cheap life insurance. Put simply, term insurance does what it says on the tin: it insures you for the term of the policy, paying out if you die before the policy ends. If you don’t die and the policy ends, the premiums you’ve paid will not be returned.
There are two main types of term insurance: level-term life insurance policies and decreasing-term life insurance policies.
Level term vs decreasing term life insurance
Level term life insurance
A level-term life insurance policy pays out the same pre-specified lump sum if you die, regardless of whether you die at the beginning, middle or end of the term. The cover remains the same throughout the life of the policy and the monthly or annual premiums usually remain the same too. This type of policy can be the best solution if you are looking to cover interest-only mortgages that are not covered by an investment vehicle or endowment policy.
In the UK, comparison websites often use level term life insurance as the basis for producing life insurance quotes, but it’s not always the best route to keeping costs down (see below on why decreasing term life insurance can be cheaper).
What does Decreasing term life insurance mean
With a decreasing term life insurance policy, the amount of cover decreases over time, although the premiums are usually fixed and remain the same for the duration of the policy.
This type of life insurance is often used to cover debt that will reduce over time, for example, a repayment mortgage where the outstanding balance will gradually get smaller.
If you are looking for cheap life insurance then, provided you understand that your cover will decrease over time, decreasing term life insurance can be a good idea as it is often significantly less expensive that level-term cover. As well as mortgage cover, this type of policy is also useful for inheritance tax planning purposes.
Life insurance with other benefits
Vitality provides term and whole of life cover in a similar way to other providers, and the insurance behaves as described above, but it offers savings and rewards for people who keep healthy through their Wellness Optimiser. With it, you can get up to 60% upfront discount on Whole of Life insurance or earn up to £125 cashback every year.
Vitality believes it is their responsibility to help you lead a healthier life, which in turn it hopes will lead to fewer claims. It does so by providing additional benefits such as discounted gym membership or cashback rewards if you stay active.
Before you purchase a policy, however, always make sure the underlying life insurance policy is still fit for your needs.
How much does term life insurance cost?
We got quotes in October 2018 for a level term policy for a 35-year-old, non-smoker with a clean medical history and based in London. But as with any type of insurance, costs vary widely and it makes sense to read as many life insurance reviews as possible and before you sign on the dotted line, make sure you have gathered multiple quotes.
In general, though, life insurance costs start rising with age, the size of the policy, medical complications or lifestyle factors such as smoking.
Life insurance online quotes are a quick and easy way to compare costs and benefits across multiple providers, but always make sure you are comparing like with like.
For more information, please contact me. I will be happy to help with whatever questions you have. www.rgwealthsolutions.com +6011-51565649
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