What makes you look for life insurance?

July 13th, 2022
What makes you look for life insurance?

Life insurance can be bought at any time from the ages of 18 to 90. And while there is no ideal age at which everyone should put their first life insurance policy in place, there are certain key life events that may prompt you to start looking for life insurance. Age is not always the key factor, it is instead dependent on your life events and experiences. Here are some of the key life events or circumstances that may make you begin your search for life insurance policies.

You become a parent

The birth of a first child can be a catalyst for a life insurance search. Now you have a youngster who depends on you and your partner. At this point, life insurance becomes essential. It means that, should the worst happen, your partner and children will be supported financially. The life insurance pay-out they get could be used to pay off mortgages and debts, deal with daily household bills or used for their education or their future. New parents will have to choose between a number of life insurance policy types and thoroughly researching them all will help you to make the best decision.

Fixed term – this type of insurance policy pays out a set amount lump sum to your beneficiaries should you pass away. This type of life insurance lasts for a certain period of time. If you die once that timeframe has passed, no pay out will be made.

A decreasing term life insurance policy – the possible pay-out decreases in value over time. This type of insurance is usually related to your mortgage and ensures your family would still be able to make payments for the remaining mortgage should you pass away.

Whole of life policy – This type of life insurance pays out whenever you pass away and has no fixed term. This remains in place for as long as you keep up the repayments. It is often the most expensive type of insurance for a new parent to take out.

Family income benefit – This type of life insurance will provide a regular tax-free income to your family if you die within the term plan. This insurance pays out a monthly amount rather than a lump sum which will help your family for a set period of time. The details of this are agreed with the insurer.

The idea of leaving your children behind is almost unthinkable but life insurance provides a crumb of comfort that they would be financially protected if you do. It will help your partner or spouse to cover costs such as mortgages, childcare, loss of earnings, monthly outgoings, education, as well as the practical everyday expenditure on clothes, food and special occasions. Life insurance is even more important if you are a single parent. Anyone who has children knows raising them is an expensive business. In fact, recent figures show the cost of raising a child in the UK to the age of 21 is £231,843, with around 38% of a household’s income spent on raising a child [1]. Shockingly, however, one in four UK breadwinners, or 8.5 million adults do not have life insurance cover in place [2].

You take on a new liability such as a mortgage

According to the Homeowners Alliance, this is when most people take out a life insurance policy [3]. Buying a home is one of the biggest single investments many of us will make. Life insurance can also be available alongside a mortgage taken out by banks or mortgage brokers, as well as other insurers. It is a common misconception that you have to have life insurance in order to get a mortgage in the first place. This is not always the case. However, life insurance is often taken out at this point to ensure your family will be able to continue payments on the mortgage should you no longer be around to do so.

If a mortgage is not paid, it can ultimately lead to the house being repossessed and your family forced to move. Mortgage life insurance normally pays out a lump sum that can help clear your mortgage should you die. The most common type of mortgage life insurance is decreasing term life insurance, also known as mortgage protection. As you pay off your mortgage over time, the amount your beneficiaries would get in the event of your death declines in line with it. Do not forget that if you move home or remortgage your property, you will need to take out new mortgage life insurance or update your policy. A decreasing term life insurance is usually cheaper than a level term or whole of life policy. If you want to make sure your family is covered for more than just the mortgage amount, you may wish to take out a fixed term or whole life insurance policy instead. Or, as there is no legal limit to the number of life insurance policies you can have in place, you may wish to take out mortgage protection alongside another policy.

To help pay for a funeral

Recent figures show the average cost of dying in the UK stands at £8,864. This includes the cost of a funeral and all other associated fees [4]. Perhaps a recent illness or the death of a close friend or relative has prompted you to think about such things and begin your search for life insurance. Funeral cover is a popular way to help your family cover such expenses.

– One way to achieve this is to make sure your life insurance cover has enough money to pay for a funeral upon your death. If this is what you want to do, a whole of life insurance policy is perhaps the best option. A decreasing term policy may not give sufficient funds to cover the funeral costs, as this money is usually directly linked to your mortgage. A term life insurance policy runs the risk that you die after the term has expired. Whole of life insurance, although the most expensive, is often the best option for covering funeral costs as part of your life insurance policy.

– Another option is to take out Over 50s life insurance which is commonly used for funeral costs. People aged between 50 and 85 are guaranteed acceptance on these types of policies, although the sum guaranteed is often lower, standing between £1,000 and £25,000.

– You could also choose a pre-paid funeral plan, which can be included as part of an insurance policy. Prepaid plans have the benefit of being exempt from inheritance tax too. Such a plan allows you to pay monthly instalments, sometimes to your insurer, which are then invested. The benefits include peace of mind that your family will not be hit with the funeral bill and that they will not be ripped off at a time when they are most vulnerable. However, the disadvantage is that if you pay monthly instalments but live to a good age, the amount paid in premiums over the years may end up far higher than the cost of your funeral. Around a fifth of funerals in the UK are paid for thanks to a pre-paid plan [5].

To ‘lock in’ good terms while you are in good health

For many, a life insurance policy is something that comes to mind as we age or gain more responsibility. But the financially shrewd among us may see the benefits of taking out life insurance while they are young, fit and healthy and with fewer responsibilities.

This could be a great time for many to begin their search for life insurance.

– Putting life insurance in place while you are young and healthy can drastically affect the premium, which is usually based on age and health at the time of application. When you are young and healthy, you are considered less of a risk and could bag a great deal on your life insurance. You can then ‘lock in’ this great premium. This is particularly beneficial when taking out term life insurance in which taking out a policy early can mean lower payments in total.

– Life insurance undergoes an underwriting process. This is usually easier when you are younger and healthier. Once health conditions are revealed, it can be decidedly more difficult – and more expensive – to arrange life insurance policies.

You want to leave a legacy for your family or children

Many people hope to leave a legacy for their loved ones, especially children, when they die. It is often the intention that this money will be used for education costs, travel or to help buy a first home. Upon a person’s death, the value of their money and assets is accumulated to form their estate, which is divided up between beneficiaries as named in a will. Inheritance Tax is not paid if the estate is valued at less than £325,000. However, if the estate is valued above that figure, it could be liable to Inheritance Tax. Estate planning can often be one reason to start a search for life insurance policies. A key way to mitigate Inheritance Tax on an estate is to have a life insurance policy written in trust.

This means it is ring-fenced and will not be considered as part of the estate, so it will not be subjected to Inheritance Tax.

Other advantages on top of the avoidance of Inheritance Tax are that pay-outs are usually faster when life insurance is written in trust as it is not subject to probate. It also means you can decide where an insurance pay-out can go.

However, writing life insurance policies in trust will not benefit everyone and policies can be difficult to amend once set up in this way.

How to search for life insurance.

There are plenty of life events and situations that can have you searching for life insurance. Finding the right life insurance for you is simple thanks to Free Price Compare. We check through dozens of quotes to find the best cover and the best price for you. Once you have decided what kind of life insurance you want, answer a few simple questions in our online search tool and within seconds, you will have access to quotes from scores of insurers, including some of the country’s biggest providers. With Free Price Compare, it takes just three simple steps.

  • Choose the cover type and policy length
  • Tell us a few details about you
  • Review your quotes and find the best option for you.

You will also need to decide if you want any additional cover such as Critical Illness Cover, and whether you plan to take out a single or joint policy with a family member.

Getting the right life insurance in place can give you vital peace of mind that your family will be financially supported should you no longer be around.

Compare Life Insurance

Get quotes from the UK's leading Insurance Providers in Minutes

Take Care Of Your Loved Ones From £10 a Month*
Get Quotes Now
4000+ reviews