The Deal with Life Insurance - the morbid topic you’ll thank us for explaining

We know, we know. You've just got your head around joining finances and now we're here talking about life insurance - probably the most adult topic you can think of. When you become responsible for more than just yourself - hello kids, partners, pets (but probably not your new plant), you start thinking about what happens to them if you’re not around. Life insurance can help ease those worries. It's not the cheeriest subject, but trust us, understanding life insurance is one of the best things you can do for your family's future.

‍

So what is life insurance?

Life insurance is basically a contract between you and an insurance company. You pay them a certain amount and if you’re lucky, you pay them it for a very long period of time. In return, they agree to pay a certain sum of money to your loved ones if you pass away during the term of the policy. Yes, that’s right. You’ll never see that money again during your life but it's a way to make sure that your family has some financial security, when your time’s up.

‍

At this point you might be asking, what’s the point? Can’t I just invest the money instead? Or use it to actually enjoy my life rather than worry about the future? Of course you can - but you’ll probably decide that better than all of that is knowing your partner, kids and anyone else you love won’t have to get kicked out the house after you die.

‍

Is life insurance right for me?

The easiest way to answer this question is to ask yourself if there’s anyone relying on you financially. If the answer to this is yes then life insurance is probably for you. Especially if you also have a lot of debt (like a mortgage or car financing) that the people relying on you today will have to pay when you’re gone.

‍

Another reason you might think about life insurance is you’re the primary earner in the house. That life insurance can help replace your income for those who depend on it. But even if you’re at home looking after the kids, don’t think life insurance isn’t for you. Imagine how much it would cost to replace all the jobs you do. You’re basically a super hero and super heroes are pricey to hire.

‍

There’s a few different types of life insurance. Which one should I get?

The most common type of life insurance in the UK is term life insurance (which covers you for a specific period). The other type of cover is called whole life insurance (which covers you for entire life). Which one is right for you depends on your specific needs.

‍

Term life insurance

When you buy term life insurance, you pick a specific term (number of years). This is how long the policy will run for and so you’ll only get a payout if you die in that time. If you’re still alive when the numbers of years is up, the policy ends and you’re no longer insured.

‍

If you die, then how much payout your family gets will depend on if you picked decreasing term life insurance or level term life insurance. They work pretty much as they say on the tin.

‍

Decreasing term life insurance is usually a bit cheaper and the amount paid decreases over time decreases. If you die today your family will get a lot more paid out than if you die right at the end of the term. This type of life insurance is usually good when you’re trying to cover costs that are also decreasing over time - like a mortgage or even the cost of bringing up children (as kids get older they usually become more independent and cost less to look after).

‍

With level term life insurance, the amount paid out remains the same regardless of when you die (within the life of the policy). This is usually good if you’re covering an interest only mortgage or if you just want to leave a lump sump of money for the family that doesn’t decrease.

‍

Whole of life insurance

Whole of life insurance protects your family whenever you pass away. While term life insurance has your back, whole of life insurance has your back…. forever. As long as you keep up with the payments, you’re covered. So, whether you’re off on an adventure climbing the Alps in your 40s, or simply kicking back in your favourite armchair at 90, your policy is still ticking away.

‍

Pretty cool, eh? Just bear in mind, this eternal peace of mind tends to come with heftier payments than term insurance - because the insurer knows they'll definitely have to pay out one day. People often go for this option if there are certain liabilities like inheritance tax or high funeral costs that will arise if they do.

‍

Remember, the idea is to choose a policy that best covers your family’s financial needs should something happen to you. So take your time, and choose wisely.

Do I need to get a medical to get life insurance?

The truth is, it depends. Most insurance providers will ask you to answer a few health-related questions to get a sense of your overall wellbeing. What’s your height and weight? Do you smoke or use drugs? Do you have a sibling or parent who died of diabetes or cancer before age 65? They’re not just being nosy, it's just their way of figuring out how much of a risk you are to insure (in other words, how likely they are to have to pay out). For most people, that’ll be it. But if you’re after a large amount of cover or if you’re a bit older then they might ask you to complete a medical too.

‍

Honesty is key here. Yes, you’re likely to be paying higher payments if you’re a smoker and so it might be tempting to tell a white lie to lower the costs. But if it comes out later that you’ve been telling lies, your family won’t get the payout. So not only will they be sad and mourning your passing, they’ll also be burdened with unexpected costs.

‍

Wrapping it all up

Life insurance is a big deal, and we totally get that it can seem overwhelming. It may not be as exhilarating as discussing holiday plans or debating over your next Netflix binge, but it's one of those adulting things that's definitely worth your attention.

‍

Think of it as a love letter to your family, a promise that even when life throws the worst curveball, you've got their back. So, grab a cuppa, get cosy and take that first step towards securing your family's financial future.

‍

Remember, every family is unique and so are their life insurance needs. So take your time, shop around, and find the policy that fits just right. And if you’re really struggling to know what to do, there’s plenty of advisors that are qualified and regulated to help you figure out exactly what’s right for you.

‍

Disclaimer: This blog isn’t our advice, it's just a guide to help you understand the topic. We don’t know your money situation, your plans for the future or how much experience you’ve got. If you’re unsure what to do, you should speak to a professional financial advisor.

‍