Is life insurance worth getting?

If you die within the term of your policy, the insurance company will pay out a lump sum to your chosen beneficiaries.

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Is life insurance worth it?

If you die within the term of your policy, the insurance company will pay out a lump sum to your chosen beneficiaries.

If you’ve recently started a family or you’ve purchased your first property, you might have started thinking about getting life insurance. There’s a lot of information, and it can feel overwhelming trying to understand all the different types of life insurance policies and add-ons you can get. To help you decide whether life insurance is worth getting, we’ve put together a helpful guide below with all the essential details.

What is life insurance?

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Life insurance is a product that provides you with life cover for either a predetermined period of time or until you pass away.

If you die within the term of your policy, the insurance company will pay out a lump sum to your chosen beneficiaries. That lump sum can then be used to cover a mortgage, living costs, or both.

What are the types of life insurance?

Life insurance policies are mainly divided into whole of life and term life policies, each offering different benefits.

Whole of Life

A whole of life policy provides coverage for the rest of your life. Since there’s a guaranteed payout, this type of policy tends to be more expensive and not all insurance companies offer it.

Term Life

A term life policy only covers you for a predetermined period agreed upon by you and the insurance provider. This type of policy is also divided into two sub-categories – level term and decreasing term.

  • With a level term policy, the payout total remains the same throughout your insurance term, as does your monthly premium.
  • With a decreasing term policy, the payout total reduces over time, as does your monthly premium.

The right policy for you will depend on what your requirements are. We go into detail below.

What are the benefits of life insurance?

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If you were to pass away, would your family and loved ones be able to cover living costs and mortgage payments without your income? The main benefit of a life insurance policy is that it provides your family with financial protection should you pass away.

You might also use a life insurance policy if you’d like to leave an inheritance or if you’d like to cover the costs of your funeral. Here’s a breakdown of the benefits for each policy type:

  • Whole of Life: This type of policy comes with a guaranteed payout and is an excellent choice if you’d like to leave a lump sum of money as inheritance or cover funeral costs.
  • Level Term: A level term policy is excellent for covering costs that won’t change in value over the term of your policy, such as an interest-only mortgage.
  • Decreasing Term: A decreasing term policy is best suited for covering debt and expenses that reduce over time, such as credit card debt and a repayment mortgage.

How much does life insurance cost?

The cost of your policy will depend on which type you choose and various factors that are taken into consideration by the insurance company. The insurer will ask for your age, occupation, lifestyle, health, medical history, and smoking status.

We’ve put together an example quote below to give you a better idea of the costs involved.

  • A non-smoking 40-year old applicant looking for a level term policy to cover £150,000 over 25 years will be paying around £13 per month.
  • The same applicant looking for a decreasing term policy will pay around £9 per month.

Note that your quote will likely be different since this doesn’t consider any health conditions, add-ons (such as critical illness cover), or your occupation. The best way to get an exact cost is to get a quote yourself or discuss your requirements with an insurance company or broker.

Do you pay inheritance tax on life insurance?

Your life insurance payout is considered part of your estate when you pass away. Currently, any estate over £325,000 will be subject to an inheritance tax of 40%. One way that you could circumvent this is by writing your life insurance policy in trust. Doing this will detach your policy from your estate and thus avoid paying any tax on it.

It will also give you more control over how the payout will be conducted and will allow your beneficiaries to get paid quicker.

Can I get life insurance if I have a pre-existing condition?

As part of your life insurance application, you must disclose any pre-existing health conditions you might have, such as diabetes or heart disease. Note that this also includes any mental health illnesses. For the most part, these conditions won’t stop you from getting coverage, but insurance providers will increase your monthly premium to offset the high risk.

If you fail to disclose these conditions, your family and loved ones might not be able to make a claim, and your policy might be cancelled.

How to lower my life insurance premium?

If you’ve received a quote and find that your premium is too high, there are some steps you can take to lower your insurance costs. Firstly, you should always make sure to shop around for policies. Companies tend to be flexible with their prices, so chances are, there’s a better deal out there for you.

You should also make sure to discuss your policy in detail with your provider so that you are only paying for what you need.

Another great way to lower your premium is to work on the factors that the insurance company takes into consideration. It would help if you quit smoking, start living a healthier lifestyle and take part in less hazardous hobbies. Taking these steps will help reduce your monthly premium significantly.

Do I need life insurance?

As evidenced by this article, life insurance is a fantastic way to provide financial protection to your family and loved ones. You will have peace of mind knowing that if something happens to you, your family will be able to continue living in the same home and have the same standards of living as before. Remember, it’s always better to be safe than sorry.