Life Insurance. Do I need it?
Life insurance is one of those things many people know, they should think about, but it's often put off until later. Whether you're buying your first home, starting a family, or simply reviewing your finances, it's natural to wonder: Do I really need life insurance?
There are a lot of myths and bad press surrounding all insurances, but especially life insurance, as this is one of those costs in life that you will pay and YOU will have zero benefit from, except piece of mind.
This will go through why Life insurance is needed, the types of insurance available, who benefits from life insurance and maybe debunk some of those myths. The aim of this post is to show people how Life insurance, future proofs your family, if the worst was to happen. At the end of the day no one wants to talk about death but an average of 1600 people of all ages pass away each day in the UK.
What is Life Insurance?
In simple terms life insurance is a lump sum payout to your loved ones (beneficiaries) when you die. There are a few different types of life insurance (which we will go through) where they work over a specified timescale, or the amount decrease, but simply put Life insurance is a lump sum payout if you or partner (If you have a joint policy) dies.
Types of Life Insurance.
Everyone's life insurance policy will be slightly different as there are multiple factors which effect your monthly premium, but whichever life insurance you pick it is important that it is the right one for you and your circumstances.
Decreasing Term Insurance (DTI) - This is mainly aimed at people with a mortgage. How it works is you purchase a house with a mortgage lets say £200k house over a 25 year period. The aim of this insurance is to cover your mortgage over that timeframe, the amount you would receive decreasing each year in line with your mortgage. This is the Cheapest form of life insurance and personally this is a must for any homeowner to have, especially if you have a family. The last thing a grieving family wants to worry about is losing their home.
A few things to remember with Decreasing Term insurance is if your term ends (and hopefully you've paid your house off) and everyone has lived through that period you aren't entitled to anything in return. Any money paid into the policy is gone. But realistically you could be paying £10 a month for piece of mind in case the worst does happen.
Secondly if you are a first time buyer and you get out DTI, and then move to a bigger more expensive property after a few years. Your policy is no longer fit for purpose and you would need to source a new policy matching your new commitments if you want this to be fully covered. This is a mistake I made simply because no one told me this was the case.
Level Term Assurance (LTA) - This is more expensive than DTI but we are not talking crazy money. LTA would give you a a set amount (Sum assured) across the whole policy. So if you insure yourself for £200k over 40 years and are 30 years old. Whether you die at 31 or 69 your loved ones would receive the same amount. This form of life insurance isn't discussed enough. This is a very affordable form of life insurance guaranteeing stability to your loved ones if the worst was to happen over that set period.
Whole of Life (WoL) - This does what it says on the label, covers you for a set amount no matter your age. The payout the same whether you passed away at 35 or 105. This is a really good way of ensuring your loved ones received a form of inheritance and making sure your funeral costs are covered. This is the most expensive form of life insurance but has a gaurentee at the end of it.
With all life insurances, they can be as cheap or as expensive as you make them.
What effects your Life Insurance policy.
There are many factors effecting your premium, but this is where some of the myths come from such as;
Age - People believe they are too young or too old to get life insurance. This isn't true and this factor has a huge effect on the price you pay each month. In most circumstances the younger you are the healthier you are, and starting a policy when you are young (above 18) fit and healthy is the cheapest time to get one.
Amount Insured for/Term- This is where advisors can help. People often want to go in wanting to be insured for hundreds and thousands and the monthly cost doesn't fit into their budget. What a good advisor should do is scale you back to what you need and the lower you insure yourself for the cheaper it will be. By all means insure yourself for a million pounds if you an afford it but for most people £200k term life assurance will do the job. Also the length of time you want to be insured for, the shorter the term the cheaper it is.
Health - Once you've worked out you what amount and term you want, underwriters look at your health situation and can make it more expensive certain things may make you a higher risk of death such as smoking. Each insurer classes a smoker as slightly different, but if you have smoked or vaped in the last 5 years you'll be classed as a smoker. Another big one is your BMI. Now I've never been a fan of BMI as I'm 6ft 6, healthy gym goer, at 92kilo and classed as obese. But insurers looked at this and can add to premiums if you are like me and classed obese.
Occupation - Simply put it a sky dive instructor has a higher chance of death at work than an accountant. Most insurances whether you are insuring a car or getting life insurance the amount you pay is determined by risk.
Who is Life Insurance for?
Unfortunately because we don't educate youngsters about protecting finances, people don't usually think about life insurance until they're older, or after a big life event. But life insurance is for everyone. Whether you've just purchased a house, recently married or have children or simply just want to leave some money to the local cats and dogs home. Life insurance is there to help your loved ones once you've gone.
Life insurance isn't about expecting the worst - it's about making sure the people you care about are financially protected if the unexpected happens. Having the right cover can provide reassurance that your loved ones could stay in their home and maintain financial stability. As I said at the start, apart from piece of mind life insurance isn't about you, its everyone else that's been left behind after you've gone.
How can we help at MKS?
We understand talking about death is a sensitive subject which can be uncomfortable for some, so we offer free, no obligation advice to help you understand your options and give you advice on what would best suit your needs. Whether you're buying your first home, remortgaging, or simply reviewing your existing cover, I'm here to help you find the right protection for your circumstances.
Occupation - Riskier jobs