Life Insurance
Life insurance can pay money to your family or other people if you die while the policy is in place.
It can help with a mortgage, household bills and other costs. The amount of cover you need depends mainly on who relies on you and what you want to protect.
Do You Need Life Insurance?
Not everyone needs it.
The main question is simple: would someone struggle financially if you died?
Life insurance may be useful if you have children, a partner who relies on your income, a mortgage or other financial commitments.
However, if nobody depends on you and you have enough savings or other cover, you may not need it.
How Does It Work?
You pay the insurer for cover, usually each month or year. If you die while covered, the policy can pay out under its terms.
The money could help your family repay a mortgage, replace lost income or meet other costs.
However, policies are different. Always check what is covered and when the insurer would pay.
How Much Cover?
Start with what you want the money to do.
For example, you may want to:
- repay the mortgage
- clear other debts
- replace some of your income
- support children or a partner
- cover major future costs
Then check any savings, investments or insurance you already have.
This helps you see the gap that life insurance may need to fill.
Check Existing Cover
You may already have some protection.
For example, your employer may provide death-in-service cover, which can pay money if you die while working for them. You may also have cover through another policy.
Check this before buying more insurance.
However, workplace cover may end when you leave your job. So, think carefully before relying on it for long-term protection.
Level Term Insurance
Level term insurance provides a set amount of cover for a set period.
For example, you might take out £200,000 of cover for 20 years. The amount of cover would normally stay at £200,000 during that time.
This can be useful if you want a fixed amount available for your family.
However, inflation means £200,000 may buy less in the future than it does today.
Decreasing Term Insurance
With decreasing term insurance, the amount of cover falls over time.
It is often used with a repayment mortgage because the mortgage balance should also fall as you pay it off.
This type of cover can cost less than level cover. However, check how quickly the amount falls and whether it matches what you want to protect.
Increasing Cover
Some policies allow the cover to rise over time.
This can help protect against inflation, although the premium may rise too.
Check how the increases work and what they could cost before choosing this option.
Whole-of-Life Insurance
Whole-of-life insurance works differently because it does not have a fixed end date.
It is designed to continue for the rest of your life, as long as you meet the policy terms and pay the required premiums.
Because a payout is not limited to a set term, this type of insurance can cost more. Check the costs and conditions carefully.
Single or Joint Cover?
Couples can buy separate policies or a joint policy.
A joint policy may cost less than two separate policies. However, many joint policies pay only once, usually when the first person dies. The policy then ends.
With two separate policies, each person has their own cover and there could be two payouts.
So, compare what you actually get rather than choosing joint cover simply because it is cheaper.
How Long Should Cover Last?
Think about how long your family may need financial support.
For example, you might want the policy to last until your mortgage is repaid, your children are independent or you reach retirement.
Longer cover can cost more. Therefore, choose the term to match the need you are trying to protect.
What Affects the Price?
The price depends on the cover and the risk the insurer is taking.
Factors can include:
- your age
- your health
- whether you smoke
- how much cover you want
- how long you want it for
- your job
- some lifestyle factors
Different insurers may assess these factors differently, so prices can vary.
Give Accurate Information
Answer the insurer’s questions carefully.
You may be asked about your health, medical history, smoking, work and other circumstances. Give accurate information even if you think it could increase the price.
Incorrect or missing information could cause problems if a claim is made later.
What Is Not Covered?
Life insurance does not guarantee a payout in every situation.
Policies have conditions and may have exclusions. These vary, so read the important terms before you buy.
If something is unclear, ask the insurer or adviser to explain it.
Critical Illness Cover
Life insurance and critical illness cover are different.
Life insurance mainly pays if you die. Critical illness cover can pay if you are diagnosed with one of the serious illnesses covered by the policy and meet its definition.
You can sometimes buy the two together, but they protect against different risks.
Income Protection
Income protection is different again.
It can provide an income if illness or injury stops you working and you meet the policy terms.
So, think about the problem you want to protect against:
Life insurance: What happens financially if I die?
Critical illness cover: What happens if I develop a serious illness covered by the policy?
Income protection: What happens if illness or injury stops me working?
Putting Life Insurance in Trust
Some life insurance policies can be put into a trust.
This can affect who receives the money and how the payout is dealt with after you die.
However, trusts can have legal and tax effects. If you are unsure, get suitable advice before making a decision.
Review Your Cover
Your needs can change.
It makes sense to review your cover after a major change, such as buying a home, having a child, changing your mortgage or separating from a partner.
Also, do not cancel an existing policy until any replacement cover you need is in place.
Compare More Than Price
The cheapest policy is not always the best choice.
Compare the amount of cover, how long it lasts, important exclusions and whether the premium or cover can change.
Most importantly, make sure different quotes are providing the protection you actually need.
Before You Buy
First, decide who you want to protect and what money they would need if you died.
Next, check your mortgage, other debts, savings and existing cover. Then work out whether there is a financial gap.
Finally, compare policies that meet that need.
Starting with the problem rather than the insurance product makes it much easier to choose suitable cover.
Key Points
- Life insurance can provide money for people who rely on you.
- Decide what you want to protect before choosing the cover.
- Check any insurance or workplace benefits you already have.
- Different types of life insurance provide different cover.
- Joint policies may pay only once.
- Give the insurer accurate information.
- Review your cover when your circumstances change.
Important Information
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Information about financial products, including mortgages, loans and insurance, is also provided for general information and comparison purposes. Energility does not provide personalised financial advice. Whether a product is suitable or available to you will depend on your circumstances, the provider’s terms and any eligibility or affordability checks that apply.
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