When it comes to life insurance, it’s imperative that the right package is picked for you and your household. After all, if you’re the breadwinner and therefore reliant on it for the household income, you’ll want to take out life insurance.
You never know what could happen in life, which is why you want to get life insurance sooner rather than later. Whether you’ve got existing assets that are financial and therefore important to allocate to someone through a will, to being relied on by little ones.
Choosing the right life insurance policy requires plenty of research and understanding of the necessary costs that come with it. In this guide, we’ll look at what to expect when picking a life insurance policy and all the relevant costs that you can expect to pay over time.
What is life insurance?
Life insurance is a contract whereby you make payments, known as premiums, to an insurer in exchange for a lump-sum payment, usually given to loved ones or those who are on your policy/within your written will.
The payout is designed as a financial security net for those who would otherwise be reliant on your income. This payment can help to cover expenses like funeral costs, the mortgage on a property, and living expenses for all dependants involved.
So what are the key benefits that you get from choosing and implementing a life insurance policy?
- Flexibility – You choose the amount of cover you need and the time period you want it for.
- Choice of payout – Choose between a lump sum, which is a single large payment, or regular payments.
- Terminal illness cover – Many policies include cover for a terminal illness diagnosis, payout early if your life expectancy is less than a year.
- Used for specific purposes – The money can be used to pay off a mortgage, cover debts and childcare costs, or provide for your family’s day-to-day living expenses.
- Peace of mind – Of course, with a lump sum, it provides peace of mind to everyone, knowing that those left behind are well looked after.
Types of life insurance available
There are typically two types of life insurance to pick from. These are term life insurance and whole of life insurance in the UK and in the USA, you have those, but also universal life insurance, variable life insurance, and final expense life insurance. Let’s go through all of these, seeing as I have a mix of UK and US readers on my blog.
Term life insurance
Term life insurance provides financial cover against death for a set period of time. You choose how much cover you need, the duration of the policy, etc. With this type of life insurance, you’ll only receive your payout if you pass away or have a qualifying terminal illness during the term itself. It’s good to know what term life insurance rates typically look like so that you’re not paying too much in the way of premiums to get the same level of service.
Whole of life insurance
Whole life cover provides lifetime coverage, meaning your loved ones are guaranteed a payout whenever you die. Providing that the claim is valid, this is a preferred choice for many because it can help provide peace of mind that your loved ones will get something. The cost you pay will depend on the provider will expect to pay out on a valid claim. This type of life insurance is often labelled as ‘life assurance’.
Universal life insurance
Universal life insurance it’s another permanent life insurance option, covering for your entire life as long as premiums are paid. It’s also called an adjustable life insurance because, unlike others, it offers more flexibility. For example, this type of insurance allows you to increase or decrease your death benefit, as well as adjust or skip your monthly premiums. You also have a savings component with this one that can help with growth and borrowing, too.
Final expense life insurance
Known as a funeral or burial insurance, final expense life insurance is a type of whole life insurance that offers a smaller and more affordable death benefit. This is designed to help cover all of those end-of-life expenses like medical bills, funeral costs, and outstanding debt. Final expense policies are usually picked out by older individuals or less-healthy individuals in general.
Decreasing term life insurance versus increasing term life insurance
There are also two types of insurance variations, decreasing and increasing term life insurance. Put simply, a decreasing term life insurance, often referred to as a mortgage life insurance, will cause your lump sum to decrease roughly in line with the way your repayment mortgage decreases.
An increasing term life insurance policy incurs higher premiums, but it means the cover amount you have is reviewed against measures of inflation, so it’ll rise over time. That means your lump sum will be in line with rising costs of living and inflation.
How much does life insurance cost?
Life insurance costs will vary significantly, and it’s good to get some quotes for comparison. I believe that we pay two lots because we have our main property and our rental property. I think it’s £48 and £38, so we’re definitely paying a lot more than usual because of the second property. We’ve also got a lot of mortgage to pay off, so in time, these premiums will decrease.
The cost of life insurance can therefore vary based on personal factors, including:
- Age
- Health
- Smoking status
- Desired cover amount
- Lifestyle
- Policy term
It’s worth getting a personalised quote from a number of providers before you make a decision.
Steps to find the right life insurance for your family
To help find the right life insurance for your family, there are several steps you can take to find the right life insurance for your loved ones.
1.Determine your dependents
Who are your dependents? It’s good to assess what your life insurance policy will need to look like and cover, depending on how many people will rely on you for your income. It might just be a partner, or it could be three or four children, too. You’ll want to ensure the life insurance policy covers everyone.
2.Use a broker or comparison site to look at life insurance policies
A broker or comparison site is a great way to take a look at the vast number of life insurance providers and their policies available. That way, you can check out all of your options and pick out the best one applicable.
3.Check the reviews to ensure they pay out
It’s a good idea to check the reputation of the company, just to make sure they’re going to pay out if you ever need the policy to cash out the money. Take a good look at the reviews to make sure that it’s legitimate and trusted.
4.Look at additional features and consider multiple polices if relevant
You should look at any and all additional features that come with the policies as optional add-ons. You may also wish to get multiple policies, like we have for our two properties.
5.Always shop around when renewing your life insurance policy
Finally, make sure that when it comes to renewing your life insurance policy, you shop around for better deals. Over time, your premiums will go up and down depending on whether you stay with your current provider or move over to some other organisation. It’s good to look at your options for renewing, rather than sticking with a provider that might not offer the best deals.
