Getting to know: Life Insurance

In recent weeks, we have understandably received a lot more enquiries from people asking about Life Insurance, many of whom have never explored the idea of such a policy before. In order to give you a deeper understanding of how Life Insurance works, we’ve outlined some of the benefits it can bring and the different types of policies available below.

How Life Insurance works

The basic premise of Life Insurance is that it will pay-out a lump sum to your designated loved ones when you pass away. But, as with most insurance policies – there’s a lot more to it than that. There are three different types of Life Insurance; level cover, increasing cover and decreasing cover. Dependent on which of these you choose, this will have an impact on how much will be paid out at what times to your loved ones.

With level cover, the pay-out amount will stay the same throughout the duration of the policy, as will the monthly payments. Increasing cover will increase annually in line with the Consumer Prices Index (CPI) which means that both the premium you pay will increase over time as well as the amount that is due to be paid out. With decreasing cover, the pay-out due will decrease over the length of the policy. With this type of cover, the amount you pay will remain consistent, but you typically pay less than the other two covers. Decreasing cover is popular for those wanting Life Insurance for mortgage protection.

How much does Life Insurance cost? 

The premium you pay for your Life Insurance policy is determined by a variety of factors, including both the type of policy you’re looking for and a range of lifestyle factors. Your insurer will take into account areas such as your age, lifestyle, health, family medical history and occupation to shape your cover and the overall cost of your policy. For example, smokers can often expect to pay more for their policy than non-smokers due to the risks associated with the habit.

The cost of your cover will also be decided by its term – longer-term policies are often more expensive than shorter-term policies – and the amount of cover that you want. For example, some policies may simply be in place to cover the cost of the funeral whereas others will need to offer a much higher level of sustained protection.

The cost of Life Insurance is different for everyone, but if you have a budget in mind, it’s worth speaking to your broker to find out which cover will work best for you. It’s essential that you remain 100% open and honest when answering the questions required to determine your quote, as if you do provide misleading information, it could be found that your policy is void when pay-out is expected.

How do I determine how much Life Insurance I need?

When it comes to Life Insurance, there’s no set formula for determining the level of cover that you need. If you have dependents, many people choose the level of cover by multiplying their annual salary by the number of years they will remain financially dependent on you. For those looking to cover mortgage repayments, your cover will be determined by the amount you owe to the lender. There are a number of Life Insurance calculator tools online which you can use to get an estimation of how much you need which look into the reasons why you want the cover and who it’s for the determine a final amount. Some people even have multiple life insurance policies to cover loved ones for a range of purposes.

Does Life Insurance cover COVID-19?

When it comes to the coronavirus, it’s likely that many existing Life Insurance holders are covered in the event of death due to the virus – but it’s worth checking the terms of your agreement. If you are planning on taking out a Life Insurance policy with the view to protecting your loved ones should something happen to you during this pandemic, whether you are covered or not will again be determined by the policy’s individual terms and conditions. If you are displaying symptoms of COVID-19 when taking out the policy – or indeed, if you’ve already tested positive for it – it’s unlikely you will be able to take out cover until you have fully recovered.

We hope that this overview of Life Insurance has been of benefit to you and if you have any more questions, the team at Insure Smart are happy to help, just get in touch via our contact page. You can also find out more about our Life Insurance service here.