What Is Life Insurance And Why Do I Need It?
2 Jan 2020
It’s true that you don’t need life insurance but trust us - it’s a really sensible idea to take it out. A life insurance policy is designed to benefit and protect the most important people around - your family. Setting up a policy is one of the most generous and selfless things that you can do.
Tell me more about life insuranceLife insurance is designed to pay out a lump sum of money when you pass away. This money is then given to your beneficiaries - your family - to keep life ticking along as usual without you around. It’s there to provide for them, pay the mortgage, pay off any debts - whatever it may be, it allows them to go on living the life they love when you’re no longer around.
Not all life insurance policies last for a lifetime and it depends what you choose when you take out your policy. You can choose either a whole life or a term life policy. As the name suggests, a whole life policy lasts for, well, the whole of your life. A term policy lasts for a certain amount of time, so perhaps until your mortgage would be paid off or until your children would be financially independent. You decide this when you take out the policy.
Even though with a term policy you may never end up making a claim and receiving the payout, it ‘buys peace of mind’. If you take out life insurance while you’re young and healthy then the monthly premiums should be very manageable. We asked people how much they would be willing to spend on life and health insurance each month and the average answer was £50, which is actually more than enough to cover the essentials.
You should also think about whether to opt for a decreasing term policy or a level term policy. Decreasing term policies are designed to cover a debt that decreases over time, such as your mortgage. Because the potential payout amount decreases over time, monthly premiums are typically lower for the life of the policy. The final payout might not be big enough to cover many costs but it will be enough to pay the mortgage off.
Why do I need life insurance?Not everyone needs life insurance, but if you have children that rely on you financially then you should really have it. If you’re a parent then you don’t need us to tell you that it’s an expensive job and raising them comfortably on just one salary can be difficult. By taking out a life insurance policy, you’re essentially securing that second income for your family so that your kids and partner can go on living the same lifestyle as they always have.
And we know we’re talking a lot about children here, but even if you don’t have a young family, life insurance could prove to be pretty vital. If you have a partner who relies on your income to cover part of the mortgage repayments for example, they will be your dependent in the same way that children would be. The same goes for anyone else that depends on you, such as a parent or an elderly relative. Ask yourself, how would they cope financially if you were no longer around?
When can I afford to not have life insurance?With the above in mind, if you don’t have any dependents then you don’t need life insurance. If you’re a single person without children, it might not be the best way to spend your money. Even if you have a mortgage, if anything were to happen to you the house would be sold on which would pay off the outstanding mortgage payments. Basically, there wouldn’t be any big financial implications if you were to pass away.
And even for some parents, life insurance still may not be the best use of your money. Perhaps your partner earns enough for the family to live on and your income isn’t what keeps things going. Similarly, you might be on a low income and eligible for state benefits which could cover your needs.
Some employers offer ‘death in service’ benefits within their employee package so it’s worth checking this, as you’ll be covered with a payout if you pass away which could possibly render any additional life insurance pointless. If this is the case, work out whether this cover is enough to meet your needs and don’t forget that if you stop working for this employer then you won’t be covered under their policy anymore.
Hopefully by now you have worked out whether life insurance is right for you and your circumstances. The general rule is that if anyone depends on you financially, then you should have a life insurance policy of some kind behind you to fall back on.
Once you’ve made your decision, it’s time to start searching for your perfect policy. Get in touch with us here at LifeSearch on 0800 316 7253 and we’ll provide you with some quotes and guide you through each step of the way.
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