What type of life insurance is right for me?

September 19th, 2022
What type of life insurance is right for me?

None of us like to think about the worst happening. But it’s important to consider what would happen to your family if you were to die or be unable to work due to accident or illness. Life insurance can help to take away this worry, by providing your family with money to help them manage everyday finances as well as extra costs. In this period of nationwide economic uncertainty, there’s never been a better time to consider getting life insurance to protect your family’s future. But finding the right life insurance quotes for your individual needs can be difficult. In this guide we’ll talk you through the different types of life insurance available and how you can choose the right one for your family.

What is life insurance?

Life insurance provides your dependents with a cash payout if you die during the term of your policy. This could be monthly payments for a fixed amount of time, or one cash lump sum. It can also have added extras, such as Critical Illness Cover, which will also provide a payout if you’re diagnosed with a terminal illness. When you take out life insurance, you can decide how long you would like the cover to last and how much you would like your dependents to receive.

Should I get life insurance?

Life insurance has many benefits, including:

  • Supporting children: The average cost of raising a child from birth to age 18 in the UK is now £151, 000 [1]. Life insurance can be used towards some of these costs by paying for things such as nursery fees, money to help children when they start at university, or even money to allow kids to continue their favourite hobbies.
  • Covering mortgage payments,
  • Paying off debts such as credit cards, car purchase plans, or loans,
  • Covering funeral costs (the average funeral in the UK using the services of a funeral director currently costs £3, 837 [2]).
  • If you’re self-employed, life insurance and critical illness cover can also help to protect you if you are unable to work.

What type of life insurance should I get?

There are many different types of life insurance out there and deciding which one is most best for you depends on a number of factors:

  • Your family situation, including how many children you have, and how old they are.
  • How much you have left on your mortgage.
  • Your financial situation including your income, debts, and mortgage.

If you don’t have children or outstanding debts, the amount of life insurance you need would be far lower than someone who has young children and another thirty years left to pay on their mortgage.

Different types of life insurance

There are two main types of life insurance: whole of life insurance and term insurance.

Whole life insurance

Whole life insurance policies provide protection until death. The amount of payment you’ll receive from the policy is guaranteed throughout the term of your cover so you’ll always know how much your family will receive if you die. Payments for whole life policies can be made monthly or annually, and can even be made as a lump sum at the beginning of your term, giving you a bit more flexibility around how you pay. Some whole life policies also offer early payouts if you are diagnosed with a condition which prevents you from taking care of yourself, such as dementia or Alzheimers.

Advantages of whole life insurance
  • This type of life insurance can help with budgeting as you’ll know exactly how much your family will receive if they need to claim. Your monthly payments will also remain the same throughout your term so you know your premiums won’t rise (useful to know when other costs are going up).
  • It can help to cover costs such as inheritance tax (the standard inheritance tax rate is currently 40% of the estate’s value above a threshold of £325,000) but this does depend on the type of policy you choose.
  • Provides peace of mind as you know you’re covered for the whole of life, whether that’s 10 years or 100. This can provide added peace of mind as you don’t have to worry about extending the life of your policy in the same way you might have to for term life insurance (which generally lasts up to 25 years).
  • Whole life insurance policies can also offer an attractive cash value component, which accumulates over the length of your policy. This means that you can potentially (depending on your policy) borrow against the money in your pot if you need some cash.
Disadvantages of whole life insurance
  • Whole life insurance policies can be expensive compared to other policies
  • Building up cash values can take a long time. This means that you wouldn’t be able to borrow against your loan for quite some time. It’s important to be aware also, that any money you borrow would be deducted from a final payout if you died before it was paid back.
Term insurance

Term, or term life, insurance provides insurance for a specific amount of time (usually between five and twenty five years). There are a number of different types of term life insurance, each with their own pros and cons. Term life insurance policies can be useful because their duration usually covers the most expensive years of your life (when you are paying off a mortgage and raising young children) and you may not feel that you need life insurance after this. However, if you decide to extend the term of your policy, or buy a new one after it has ended, you might find that prices increase significantly.

Level term life insurance: Level term life insurance provides a set payout which won’t change throughout the life of your policy. Monthly premiums will also remain the same. This can be very helpful for families on a budget as they know exactly how much they’ll have going out each month. It’s also popular because you know exactly how much you’ll receive after death, so you can be confident that all of the household expenses will be covered. One disadvantage of this type of policy however, is that it does not keep pace with inflation (in July 2022, this was 10.1% in the UK [4]) so the same cash payout could be worth less in real terms later on in your policy.

Increasing term life insurance: An increasing term life insurance policy can help to make sure that payouts keep pace with living costs but also means that you’ll face increasing payments throughout your term. Your monthly payments will be reviewed annually by your insurance company. This can mean that payment increases are difficult to plan for, especially when other costs, such as energy and food, are also rising.

Decreasing term life insurance: A decreasing term life insurance can be used to support paying off specific debts, such as a full repayment mortgage. As the name suggests, this type of insurance policy provides a decreasing payout each year of your policy.

That means it can be harder to plan your future because the amount you would receive changes annually. However, this type of life insurance generally offers lower premiums so it can be a good choice for those with tighter budgets.

Critical Illness Cover

Critical Illness Cover can also be added to many life insurance policies to provide protection in case you are not able to work due to accident or illness. This can be especially useful for self-employed people who won’t receive the same statutory sick pay benefits that employed people do.

Joint Life Insurance Policies

It is also possible to take out a joint life insurance policy with another individual. Often, this is something that married couples might do, with payment going to the surviving partner after the other’s death.

Other types of life insurance

There are also several other types of life insurance to consider which offer both smaller payouts, and smaller premiums.

Mortgage Life Insurance

Mortgage insurance provides protection for mortgage payments and reduces over time as your mortgage gets smaller. Often, this can be a cheaper alternative.

Over 50s Life Insurance

If you’re aged 50 and up, you could also consider an over-50s life insurance policy. These policies pay out a fixed lump sum to your family when you die which can be used to help with paying off debts or covering funeral expenses. Unlike whole life insurance policies for younger people, the amount your family would receive is set and you cannot borrow against it. Most people will also be accepted for over 50 life insurance without the need to answer medical questions. Monthly payments can also be quite low as the amount of cover needed is generally smaller. Many people, who may have already paid off their mortgage and whose children are now financially independent, may choose over 50s life insurance as a way of helping their families to pay funeral costs. People aged between 50-80 are eligible to take out over 50s life insurance.

Is there an age limit for taking out life insurance?

It’s possible to take out ordinary life insurance through most providers up until the age of 65. Taking out a life insurance policy later in life though can mean that your payments are high, especially if you have any health conditions.

How much life insurance should I get?

This depends on the type of policy, how long you want the cover to last for, and the level of support you’d like to provide for your loved ones. As a general rule, the higher the amount of protection your life insurance policy provides, the larger your premiums will be. It’s important therefore to strike a balance between making sure that your policy offers enough cover to suit your personal needs and not paying out too much in your monthly premiums.

  • Primarily, it’s a good idea to make sure you have enough cover to pay off the remainder of your mortgage as this is likely to be your family’s biggest expense.
  • Next up are any other outstanding debts, such as car loans, credit cards, or personal loans. You might want to add cover for these to make sure your family can afford to pay them off and maintain their lifestyle.
  • You’ll also want to consider adding enough cover to make sure that your family are able to afford day to day living expenses including food bills, energy bills, childcare costs and so on. A general rule of thumb is to buy enough insurance to cover 10x your gross annual salary, although this could be higher if you have larger outgoings or a bigger family.

Applying for life insurance

Before you apply for life insurance, you’ll want to spend a bit of time on a comparison site, such as Free Price Compare to find the best quotes for life insurance for your needs. This will provide policies from a range of life insurance UK providers which can be tailored to your needs. Before you’re able to apply for life insurance, you’ll be required to answer a few questions to check your eligibility:

  • your insurer will want to know about your general health and any pre-existing medical conditions. This could include any diagnosed medical condition. A pre-existing medical condition certainly doesn’t stop you from being able to buy life insurance, but insurers may want to know more information including any medication you’re on or any treatment you’re receiving. They may also contact your GP to ask for copies of your medical records.
  • your age and occupation. In general the younger you are, the cheaper your insurance policy will be. Insurers also need to know about your occupation to assess how likely it is to cause injury or illness. For example, a tree surgeon’s job is a lot riskier than someone who works in an office, meaning that their insurance premiums would be higher.
  • your lifestyle. Insurers will also want to know about your health habits and whether you drink, smoke, and take regular exercise. It’s important to be as honest as possible with insurers to make sure that your quote life insurance conditions, and level of cover are all accurate.

Life insurance can help to provide peace of mind to you and your loved ones. When it’s time to search for your perfect life insurance quote, you can rely on Free Price Compare’s simple online tool to help you find the best cover for your needs.

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