What Is Life Insurance?
Life Insurance can give you the peace of mind that should anything happen to you, your loved ones would be taken care of financially. Life Insurance is an insurance product designed to provide a predetermined tax-free lump sum, or ongoing payments, to a chosen beneficiary in the event of the policyholder’s death.
How Much Does Life Insurance Cost?
Life insurance premiums vary, depending on two key factors:
- What type of cover you require
- Your personal circumstances which affect risk
Type of Cover Factors Which Affect the Cost of Premiums:
- The Length of time you would like the cover to last
Policies can be for the whole of life, meaning that whenever you die, whatever age that may be, the lump sum pay-out would be paid to your beneficiaries. Alternatively, policies can last for a certain term, for example to cover whilst your children are growing up, or while you are paying off your mortgage. In this case, the policy would only pay out during the term of the cover, thus making the premiums cheaper.
- The amount of cover you wish your beneficiaries to receive
You choose the value of the cash sum that’s paid out on your death and naturally, the more cover you require, the more expensive the premiums will be. The amount of cover you require will depend on the value of the expenses you wish to continue to cover without your salary to do so. The greater the value of the pay-out you choose, the higher your premiums will be.
- Whether you choose a level or decreasing term policy.
A Decreasing Term policy is one of the most cost-effective Life Insurance policies available. As time goes on the level of cover decreases. It works well to protect a repayment mortgage; as the value of the mortgage debt decreases, so do the premiums and the level of cover. If allowing your loved ones to continue to live in the house and not have to worry about paying off the mortgage are your main concern, this is worth considering as the monthly premiums are less than a level policy.
Personal Circumstances Which Affect the Cost of Premiums:
The younger you are when you take out a policy, the less likely you are statistically to pass away; so your premiums will be cheaper.
Pre-existing medical conditions will be considered when calculating the cost of your life insurance premiums. Those with no pre-existing conditions will have cheaper premiums. Insurance companies can also take into account your height and weight to predict your health.
- High Risk Professions and Activities
You would also need to disclose any hazardous activities or work you take part in which could increase your risk and subsequently increase your premiums.
Smoking increases your chance of developing many deadly illnesses and consequently shortens lifespans. As a result, smokers pay higher premiums than non-smokers.
Who Needs Life Insurance?
Life Insurance is not a legal requirement, but if you have anyone who relies on you financially, or a debt such as a mortgage, it is certainly something to consider. Think about how much your dependents would need to maintain their current standard of living if you were not there to provide for them. These costs may include your day-to-day bills, a mortgage or rent, school or university fees and more. If these costs cannot be covered by savings; then life insurance could be the answer. It can also be used for the purpose of leaving an inheritance behind, or to cover funeral costs or inheritance tax bills.
How Much Life Insurance Cover Will I Need?
As mentioned above, cover can vary depending on the lump sum payout amount you would like your beneficiary to receive. Your requirements can be calculated by the costs you need to cover – such as those mentioned above. It could also be calculated to cover a significant debt such as a mortgage or long-term loan.
Will Critical Illness Cover Cost More?
Life Insurance policies are there to cover your financial obligations, but only on the occasion of your death. Some will pay out early if you are diagnosed with a terminal illness where you are only expected to live less than a year. But there are other circumstances that would not trigger the Life Insurance policy pay-out, but would render you unable to work and thus maintain the same financial commitments. Such conditions as cancer, stroke, heart attack or a life changing disability could all be accounted for with Critical Illness cover.
The chances of a critical illness are higher than that of death, so Critical Illness is a separate policy and it will add to the cost of your premium. But there could be even more costs to pay for surrounding a critical illness than with death; as you will still need to maintain your own lifestyle as well as your loved ones, and perhaps make alterations to the home.
Do I Need Income Protection?
Income Protection cannot be packaged together with Life Insurance in the same way Critical Illness cover can. It would cost extra as a separate policy, but none-the-less it is relevant as another form of cover for illness and injury.
Income Protection is designed to cover any medical reason why you cannot do your job and provides a percentage of your wages (before tax) while you are unable to earn. This is paid in the form of a monthly income, compared to a lump sum as it is with Critical Illness.
