Life insurance: everything (sort of) you’ve always wanted to know but were afraid to ask

Mon 25 Jul 2022

If you've ever had a question about life insurance - what it is, and how much it might cost - you're in the right place. Here, we break down, in no particular order, everything you’ve always wanted to know about life insurance.

Life insurance is often thought about as something only rich people need to worry about, but that’s not true. Most people feel and understand the need to protect their loved ones when they die. A life insurance policy could be one of the ways to do that.

How does life insurance work?

Simply put, life insurance is a financial product that helps you to leave behind money for your family if you die while covered. It isn't a savings or investment product and has no cash in value at any time. It pays out if you die or are diagnosed with a terminal illness within the term of the policy. The money could then be used to support your family in a variety of ways. It can perhaps help to replace the regular income they'll lose when you die, or could go towards paying off a large debt, such as your mortgage.

How much does life insurance cost?

There are many factors that go into calculating how much your life insurance will cost such as your age, health, weight and smoker status. How much you pay also depends on the type of life insurance you take out and how long you choose to take out cover for (for example, 25 years). This means that your life insurance payments can range from a surprisingly low amount, to quite a lot more depending on what you choose.

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How do you claim?

The process is different for life insurance providers. But generally, they follow these steps:

  1. The policy owner dies
  2. The family, beneficiaries or legal representatives contact the insurance company
  3. The insurance companies guide them through what is needed to pay out the money to the beneficiaries.

How long this takes depends on how straightforward the claim is.

What are the different types of life insurance?

There are various types of life insurance to choose from.If you’re applying directly with an insurance provider, it’s important to select the most suitable one for your circumstances. If you’re using a financial adviser, they can guide you through this process.

Need Advice? If you don’t already have a financial adviser, there are a number of directories that you can use to search for one in your area and according to their specialisms. Advisers may charge for their services - though they should agree any fees with you upfront. Whichever route you take, your age, health, lifestyle and how much cover you need will all determine how much you pay.

Level term life insurance cover

Level term insurance is probably the most common and the most straightforward type of life insurance. You can choose the amount you want to be insured for and how long you want the cover to last, and it's designed to pay out if you die within the term of the plan. If you survive to the end of the policy term, the plan will end and you won’t receive anything back from it. The amount you're covered for remains the same throughout the term.

To give an example, you might choose a level term life insurance policy at 20 years for £80,000. This would mean that if you died at any time during that 20-year term, your loved ones would receive £80,000 if there was a valid claim and the policy payments were up to date. It doesn't matter if you die after the first year or in the last year of the policy. The pay-out would be the same.

Decreasing term life insurance cover

With decreasing term life insurance (also known as mortgage life insurance), the amount you’re covered for decreases over the term of your policy. Your monthly payments remain the same, so you know exactly what you are paying each month. Typically, these policies are used to cover a debt that reduces over time, such as a repayment mortgage.

Critical illness insurance

Critical illness cover can be sold on its own or as an optional extra alongside life insurance. It's designed to help you and your family if you're diagnosed with a critical illness listed in your policy documents. You can receive critical illness insurance as a lump sum or an income, depending on what you choose when you take the policy out.

If I’m single, do I need life insurance?

If you’re single, you may think you don’t need life insurance, but there are times when it’s a good idea. For example, by taking out a plan to cover the cost of your funeral, and reduce what could be a significant financial burden on your loved ones.

And, if you’re a single parent, your life insurance could help towards your children’s needs if you were no longer around. And, as they get older, a life insurance pay-out could help with university costs, or perhaps driving lessons or even money towards a deposit on their first home.

If I’m single with no children, what’s the point of taking out life insurance?

Life insurance can also be used to clear any outstanding debts you may have, including your mortgage. Debts you may have regardless of your relationship status.

Similarly, life insurance that includes income protection or critical illness can give you financial support when you need it the most.

Isn’t it better to set money aside for savings rather than buy life insurance?

Think of term life insurance as a practical addition of a wider financial plan. Cover typically starts immediately for the full value of the policy. So if, for example, you took out £80,000 cover, your family could receive that amount whilst the cover is in place.

Putting money aside for a rainy day is different. Most savings accounts could help with problems like fixing a broken-down boiler or car. It probably wouldn’t offer your family the same level of financial protection as life insurance would, in the event of your death.

If you thought that life insurance was expensive, think again. With prices starting as low as a few pounds each month, your family can be protected and have money to help them with bills and other living expenses in the event of your death.

Is it true that life insurance companies don’t like paying out to beneficiaries?

In 2020 over 99% of Royal London protection insurance claims were paid. Despite this, there is still a misconception that insurance companies don’t pay out. In cases where they don’t, it’s usually due to irregularities at the point of application. This could be due to downplaying or omitting a medical condition, or premiums are not up to date, or a plan has expired.

Life insurance aims to financially protect your loved ones if you pass away while covered. If you're thinking about taking out a plan but not sure which one, you can discuss your concerns with an adviser before getting your policy.

I’m 50. Am I too old for life insurance?

The maximum age for buying life insurance can vary between insurers. Age limits can also depend on the type of insurance you're looking for. Regardless of your age, there's a good chance you'll find a suitable life insurance plan - even if you think you are too old.


Type of article: Articles
Category: Protecting my family

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