At some point in our lives most of us will have a need for Life insurance. Life insurance is a contract made between the applicant(s) and a Life insurance provider and under the terms of a Life insurance agreement, the Life insurance provider promises to pay a specific amount to a nominated beneficiary when the insured dies, assuming premium payments are kept up to date.
Life insurance gives your nominated beneficiaries some financial security if the insured was to die, which affords greater peace of mind. The various Life insurance options can make choosing the right policy or policies confusing and it’s crucial you do enough research - and if possible consult a financial adviser - for a Life insurance policy that fulfils your needs.
Why do you need Life insurance?
The usual reason for taking out a Life insurance policy is to replace lost income when you die. If you are working for example, typically your income will be used to support you and your family. This income will stop of you die and Life insurance can be used to help support family members left behind.
Another widespread use of Life insurance is to repay any debts left behind. For example, mortgages are regularly left outstanding if someone dies. Life insurance can be used to repay mortgage debt, leaving your other assets intact for your beneficiaries.
Life insurance provides liquidity; when you die, you may leave some liquid assets (such as cash, and savings), and some illiquid assets (such as property, a car or stocks). It is highly likely these liquid assets may not be enough to repay the debts left after death. Your illiquid assets will have to be sold to meet these obligations when they come due. Life insurance is put in place to help prevent this, as the proceeds are available almost immediately after death.
Life insurance can be used to give to charity when you die. You may have the desire to give, but have never been able to afford to. Life insurance can be used to fulfil this.
The cost of Life insurance is dependant on the type of policy, your age, and your health.
There are a range of Life insurance policies available, which are as follows:
Level Term Life insurance - A Life insurance policy which pays a cash lump sum if you die during a specific term.
Mortgage Protection Life insurance - Life insurance is calculated to cover a repayment mortgage, if you were to die. The sum assured payable reduces inline with your decreasing mortgage debt.
Increasing term Life insurance - Has higher premiums because the cover increases every year without the need for a medical. The increase in cover can be liked to the Retail Price Index, a specified percentage rate, etc.
Family income protection Life insurance
This type of Life insurance is different; as a replacement for paying a lump sum, instead the policy pays a tax-free annual income to the beneficiaries for the remaining term of the Life insurance policy.
Joint Life Second Death – the Life insurance policy is in two names and pays out on second death. Joint Life insurance policies usually pay out on the first death but can be set up to pay out when the second policy holder dies.
Glossary of Life insurance terms
• Term - the number of years the Life insurance policy runs for.
• Premium - the amount you pay every month.
• Terminal Illness Cover - automatically included with most policies - means that your life policy will pay out before you die if the Life insurance company have medical evidence that your life expectancy is less than 12 months.
Will Smoking Affect a Life insurance Policy?
Smoking is damaging to health and is a principal cause of life threatening illnesses. Therefore smokers pay higher Life insurance premiums than non-smokers. It is very important to understand, if you smoke and do not declare this, it’s highly likely your Life insurance policy will be invalidated, if you make a claim.
Does gender or age affect the Life insurance premiums?
Women are proven to live longer than men and are less likely to claim during the period insured. As a consequence, a female is likely to have lower Life insurance premiums than a male.
Your age will impact on the premiums quoted for a Life insurance policy, the older you are the higher the risk to the Life insurance provider so the higher your premium will be. A lot of Life insurance providers have a maximum age limit for the provision of Life insurance (usually to the age of 75).
