Created by: John Fitzsimons | 23 November 2018

Life insurance: the vital cover that most people don't have

A study earlier this year by comparison site CompareTheMarket revealed that less than a third of people in the UK have a life insurance policy.

That leaves an awful lot of families who would potentially fall into financial difficulties in the event that one member died.

Do I really need life insurance?

First off, it’s important to work out whether you actually need life insurance, as not everyone does. The key question you need to ask yourself is whether there is anyone who would be left worse off financially if you were to die suddenly.

So if you live with your partner, they may struggle to pay the rent or the mortgage and the regular bills if you weren’t around. It’s a similar situation if you have children or care for your parents.

If you have financial dependents, then life insurance is no luxury - it’s an essential bit of cover to put in place. But if you don’t, then life insurance isn’t really something you need.

The different kinds of life insurance

Once you accept that you need life insurance, the next thing to work out is what type of cover to go for, since it comes in a couple of different forms.

First there’s level term assurance.

With this sort of policy, the payout that your loved ones would get if you passed away is the same, no matter whether you die in the first year of the term or the last. So for example if you have a level term policy worth £50,000 over 40 years, if you die at any point during that 40-year term, your loved ones would get £50,000.

Alternatively, there’s declining term assurance.

The name is a clue here - the payout your loved ones would get decreases in size over the term of the policy. This is generally a popular choice for people who mainly want the policy to cover the cost of the mortgage if they die, as the payout gets lower as the outstanding mortgage does. It’s also worth noting that these policies are cheaper than level term assurance.

A whole-of-life policy covers you for the rest of your life, rather than just over a set term. Because there is a guarantee of a payout at some point, these policies tend to be particularly pricey.

Finally there is family income benefit.

With the policies already mentioned, the payout is generally in a lump sum - your loved ones get all the of the money in one go. But with family income benefit, your family get the money as a monthly payment. This may suit them more as they don’t then need to worry about how to invest and maintain the money to ensure it can lasts as long as possible.

How much life insurance cover do I need?

Working out the right amount of cover can be tricky - you don’t want to get too little, and leave your loved ones counting the pennies after you’ve gone.

It’s a good idea to sit down and work out what you want the policy payout to cover, from the mortgage to the kids’ education costs. Some providers and comparison sites offer their own cover calculators to help you work out a suitable figure, so it’s worth checking those out too.

Keeping the cost low

One of the explanations often given by those who don’t have life cover is that they think it will be too expensive. But this isn’t actually true - it’s not uncommon to pay less than £20 a month for life cover, which is more than worth it given the peace of mind it provides.

Nonetheless, there are plenty of things you can do to keep your life insurance costs as low as possible.

For example, keeping as healthy as possible is a good start. If you’re overweight, you are statistically more likely to develop serious health issues, and as a result your premium is likely to be more expensive. Some insurers actually offer rewards to policyholders that do healthy things, ranging from eating fruit and vegetables to visiting the gym on a regular basis.

Shopping around is a smart move too. Different insurers will look at the risk you pose to them in different ways, so getting quotes from a range of insurers will help you find the best possible deal.

Finally, it’s really important that you tell the truth about any pre-existing health conditions you may have when applying for life cover. If you have a history of certain health problems, this will make the policy more expensive as insurers will view you as a bigger risk.

But it’s really not worth lying about them in order to cut the cost of your policy, as if the insurer finds out your policy could be invalidated, leaving your loved ones without any payout at all.

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