Could your family cope without you? There comes the point in every person's life when you start to think about what would happen if you were not around anymore.
What is life insurance?
A Life insurance policy provides financial help for your loved ones when you pass away, whether that is a lump sum to pay off the mortgage, reduce any outstanding debts, or help cover funeral costs. In simple terms, it is a financial safety net should the worst happen.
Life insurance is not just about dying. Some life cover plans can help to financially protect you if you suffer a critical illness. Your children may be covered too. If this is important, our advisers can find the right plan for you.
Thinking about your death sounds a little morbid, but you would not drive your car uninsured or leave your home unprotected, so why wouldn’t you want to protect your family financially?
Why might you need Life Insurance?
Things happen in life, but a life insurance policy will give you peace of mind that your family will not suffer financial hardship without you.
As mentioned, the point of life insurance is to provide a cash sum to your dependents (your partner or children maybe) if you die or are diagnosed with a terminal illness and less than a year to live. Some life insurance policies also include critical illness cover or you can take out a specific critical illness plan to cover you financially.
As you move through life and your circumstances change, so should your life insurance cover. Here are five key milestones when you should check your life insurance level of cover.
1. Buying a new home: Do you need life insurance for a mortgage?
The main reason people buy life insurance is to ensure that the payout would pay off all or part of their mortgage in the event of your death. As part of your mortgage offer, your mortgage provider may ask for proof that you have a life insurance policy that will cover the mortgage loan. This is called a ‘sum assured value’.
2. Getting married: Is it time for joint life insurance?
Getting married can be an exciting but stressful time, but don’t forget about your life insurance. Now’s the time to protect your partner from any joint risks that can be covered within your life insurance policy. It’s also worth checking whether it is worth buying a combined policy that could be cheaper or increase what you have separately.
3. Starting a family.
Now you have started a family, you may feel more responsibility to protect your family during their childhood and beyond. Starting a family is one of the most critical times to get your Life Insurance checked to ensure your cover provides enough for your growing responsibilities.
The Child Poverty Action Group suggests that from birth to the age of 18, the cost of raising a child is between a little under £80,000 if you are a couple and just under £100,000 if you are a single parent in 2020*. If you have bought life insurance to cover living expenses, you may need to increase your sum assured.
4. Changing jobs.
As your wages increase, most people’s expenditure rises too, and you may wish to increase your level of life cover to ensure your expenditure and any debt is covered.
Check with your new employer to find out if your new compensation package covers’ death in service’. This typically pays out a tax-free lump sum if you die whilst employed, so you may be able to reduce the level of life cover you need and save a little money.
5. Retirement and life insurance.
By the time you stop working, your children may no longer be financial dependents. However, if your partner or grandchildren still depend on your income, life insurance may still be necessary.
Review your level of cover to ensure you have appropriate plans in place.
The Different Types of Life Insurance Cover
- Single Life Insurance.
Single life insurance pays a lump sum if the policyholder dies during the policy term. So, if there are two of you, each with single life insurance, each policy would payout separately on the policyholder’s death.
- Joint Life Insurance.
Joint life insurance for couples, whether married or not, involves one application and one regular payment per couple. A joint life insurance policy is generally provided at a lower cost than two single life insurance policies but will only provide a single payout when the first policyholder dies.
- Level Term Life Assurance.
Level Term Life Assurance is a medically underwritten policy taken out over a set number of years to pay out if death or terminal illness occurs within the timeframe you took out the policy. The cover amount and premium will never change with this type of policy; this is known as a “Guaranteed rate”.
- Decreasing Term Life Assurance.
Medically underwritten policy taken out over a set number of years, only on this policy the cover amount decreases as it is traditionally taken out the protect a mortgage. A decreasing term life assurance policy is a cost-effective way of covering a repayment mortgage.
- Critical Illness Life Insurance.
Will pay out on diagnosis of a critical illness, varying by which provider you elect to go with, to cover you while you are incapacitated. If no critical illness occurs, the policy will also payout for death. I like to think of this as a two-pronged form of protection, Illness as well as death. These policies can run to a maximum age of 75.
- Whole of Life Insurance.
A Whole of Life Insurance policy has no expiry date due to age but is medically underwritten. A medically underwritten policy means you will need to answer questions about your health and lifestyle.
- Income Protection Insurance.
Income protection insurance will pay out a percentage of your salary if you cannot work due to an accident or sickness. Payments can be made for two years, five years, or until retirement age should the situation arise.
- Over 50’s Life Insurance.
As the name suggests, an Over 50’s Life Insurance policy is for people 50 years or older. There are many benefits to over 50’s life cover, including no medical questions, no increases in premiums and come with a guaranteed acceptance of cover. If you would like to know more about Over 50’s Life insurance, please click here or download our guide here.
How much life cover will you need?
The amount of cover you will need and what you need to cover with be different for everyone. If you have a home mortgage or other fixed loans, how much have you got left to pay, and the length of time for repayments? You may need to look at your current income and monthly outgoings – things like childcare costs, household bills, any family holidays and potentially your funeral or healthcare costs.
To help you decide how long you need your cover to last, consider if you have children, how long are they likely to depend on you financially, or when your partner is planning to retire.
Lastly, you will need to decide how much you can afford to pay for the monthly premium. The amount you pay in a premium is typically linked to the amount of cover and lump-sum your recipients may receive.
Please be aware, like with most insurance policies, there is no cash value, and your insurance will only payout if you’re diagnosed with a critical illness or if you pass away.
Why choose Hilltop Finance?
Hilltop Finance is independent financial advisers based in the heart of Manchester. Our modern, forward-thinking service brings together the personal touch of a traditional adviser with the benefits of time-saving technology to provide you with the very best advice in the comfort of home.
We pride ourselves on finding the best life policy to suit your circumstances. By working with some of the leading life insurance providers, we offer a range of protection products tailored to you, giving you peace of mind knowing your family’s financial interests are protected.
Fill out a form here to make an enquiry or call 0161 413 7051 for advice on the best life insurance for you and your family.