Everything You Need To Know About Life Insurance

What is Life Insurance?

Morbid as this will sound, Life Insurance is exactly what it sounds like – insuring your life and paying your designated beneficiary a sum of money in the event of your death. This sum should cover various costs, as well as possibly leaving your loved ones a gift. So you are assured that your family will be taken care of after you are gone.

However, some Life Insurance policies also pay out on diagnosis of terminal or critical illness, in order to help you and your family cope at a difficult time.

If you are a First Time Buyer, you may not have Life Insurance at this point, but lenders insist you have Life Insurance when you take out your mortgage, to cover the outstanding payments in the event of your death. 

What is covered by Life Insurance?

As with all insurance, Life Insurance can vary a little from policy to policy. However, Life Insurance cover is a little more straightforward than other insurances. You don’t have to know if your policy covers flood damage or just fire damage, as you would with a Home Emergency policy.

Very simply, a Life Insurance policy pays out a lump sum if you die during the policy term. This lump sum should cover:

  • Funeral costs. The average cost of a funeral in 2021 was over £4,000. Cremations cost a little under £4,000 with burials setting you back up to £5,000. Knowing that these costs are covered and not something your family will have to worry about at an already difficult time can give you peace of mind. Many people also feel better knowing the send-off they want is already covered
  • Your mortgage. If you have a mortgage that you are still paying, your Life Insurance cover should clear this. This way, you know that your family will be protected and have a home, without having to worry about the payments
  • Other outstanding debts. Any loans or credit card debt that is outstanding at time of death should be cleared by the Life Insurance pay out. This way, your family don’t have to continue paying off any debts incurred in your lifetime
  • Support for your family. Once all of the costs are covered and debts cleared, anything outstanding will go to your family, so you can be assured that financial burdens will be lifted

Why is Life Insurance particularly critical for landlords?

Having Life Insurance is not legally required to get a mortgage, however many lenders make it a precondition for their mortgages. Life Insurance not only protects your family in the future, but it protects the lender’s investment, so without Life Insurance, you may find it tricky to get a mortgage. 

As landlords have more properties than residential homeowners, it makes sense that they would also need cover to protect their families in the event of death, by clearing outstanding mortgages and any other debts. 

When should I get Life Insurance?

A lot of the population doesn’t have Life Insurance, but if you’re wondering if you should, let’s take a look at the best times to get it.

When you buy a home

As mentioned above, a lot of lenders make Life Insurance a requirement of your mortgage, so you’re most likely to get a policy when you buy your first home, whether it’s your residential home or a buy-to-let.

If you are lucky enough to purchase your first home when you’re in your 20s or 30s, Life Insurance may feel like an unnecessary additional expense at an already expensive time. However, Life Insurance is always worth having when you have large investments, no matter what your age. 

You’ve only got to switch on the news to see that anything can and does happen every day, so protecting your large investments is the wisest thing. Otherwise, you are potentially leaving your family to deal with your assets, including selling your property to clear the mortgage or inheritance tax.

If you are buying with a partner, you also want to make sure that you are both protected and can stay in your home, no matter what the future might hold.

When you get married

Getting married includes a certain amount of combining your finances. These days, many couples keep their money separate, but have a joint account for shared expenses like the rent or mortgage payments, bills and food. 

Taking that next step in your relationship and getting more serious means taking another look at your finances. Life Insurance can ensure you are both protected in the future, leaving neither of you with a financial burden should one of you die.

This is also a good time to consider critical illness cover (we’ll be going into more detail about that shortly!) as this will pay out at an incredibly stressful time, when you need all the financial support you can get so you can focus on your health. 

When having children

If you decided not to take out a Life Insurance policy when you got married and you didn’t have to get one when you bought your first home (or you haven’t yet bought your first home), having children should give you pause.

Now you have dependents, young people who will need caring for for a long time. Making sure you have Life Insurance means you can rely on the fact that your children would be financially cared for should anything ever happen to you and/or your partner. 

While leaving your children is not something that anyone ever wants to consider, knowing their financial future is more secure is reassuring. A Life Insurance pay out could cover future higher education fees, the deposit on their first home or provide a financial buffer for them to fall back on, should they ever need it. 

When you retire

We’ve said it before and we’ll say it again – you can get Life Insurance at any time! However, if you’ve reached retirement without getting any Life Insurance, or you’ve let yours lapse, now is the time to revisit it.

As stated above, your Life Insurance payout will cover the costs of your funeral and any outstanding debts in the event of your death. This will free your family from the financial burden of a funeral, the cost of which, as we have seen, can run into the thousands. 

If you were able to get a mortgage without getting Life Insurance and are still paying it off as you approach retirement, Life Insurance will also cover the outstanding payments on your mortgage, freeing your spouse from having to make the repayments alone. 

How would my family benefit?

Death is a difficult time for those left behind. It’s emotionally draining for loved ones and can take its toll on mental and physical health. On top of all of that, there are a lot of paperwork and legal hoops to jump through. 

Your family will need to look at getting a death certificate and organising the funeral, before turning their attention to the house and belongings you’ve left behind. 

While no amount of money will make up for the loss of someone they love, it can ease the worry of funeral expenses and perhaps also give them the gift of time when it comes to taking care of the home left behind. Covering the outstanding mortgage payments means no one has to worry about finding the money to pay it while decisions are made about what to do next.

While no one wants to face their own mortality – we did say that this could be a little morbid! – it can be reassuring to know that the people you leave behind are well cared for in your absence. 

Do I need single or joint cover?

This really depends on your relationship status!

If you are married or in a long-term relationship, you might want to consider getting a joint insurance policy for a number of reasons:

  • Cheaper. Joint cover tends to be cheaper, especially when you’re splitting the cost between two of you
  • Longer lives. Some research suggests that couples – whether married or simply cohabiting – are more likely to live longer than single people or people who live alone. This drives premiums down and, as the surviving spouse is likely to be older, that financial payout will really put their mind at ease

However, it’s worth remembering that if you get a joint policy, once it pays out, the surviving spouse will be uninsured. It would then be up to them if they wanted to take out a single policy, to payout to the remaining family.

Instead, you could consider taking out a single insurance policy, even if you are in a relationship. While it would be a little more expensive than joint cover, it would mean that your partner would still be covered after your death and wouldn’t have to make the decision about taking out another policy in their name. It would also be easier to manage if your relationship ended, as you wouldn’t have to organise cancelling your joint insurance. 

However, as a general rule, it’s worth taking out a joint policy if you are in a long-term relationship, particularly if you are buying a home together. 

How much Life Insurance do landlords need?

You may be wondering if, as a landlord, you need more cover than residential homeowners or people who don’t own property.

As a landlord, you will have more to cover than non-landlords, but first let’s take a look at how Life Insurance is calculated.

How is Life Insurance calculated?

Unlike a mortgage, which is calculated based on your income and your outgoings, Life Insurance isn’t calculated this way. Instead it is based on:

  • Age. We’re sure you won’t be surprised to hear that the younger you are, the cheaper your policy is likely to be. This is purely because it can be taken out over a longer term
  • Health. Your insurance company will need to have a good idea of your health before they cover you. You would have to be honest about any pre-existing conditions you have that could affect your policy. The healthier you are, the less you are likely to pay
  • Lifestyle. Your lifestyle impacts your health, so this is an important factor in calculating your cover and premiums. Lifestyle includes things like whether or not you’re a smoker, but also includes any dangerous hobbies you might have

What questions will I be asked in order to get Life Insurance?

There are many questions that you can be asked when you call up about Life Insurance. Some brokers will only ask your age and your smoker status, however, many will ask a lot more!

Questions can include:

  • Height and weight. Make sure to take your measurements before you call so you have the information to hand
  • Smoking status. They’ll want to know if you smoke, or have ever smoked or used tobacco
  • Use of recreational drugs. This includes use of marijuana
  • Medical diagnosis. Let your broker know if you have received any diagnoses in the recent or distant past
  • Prescription medications. Gather any medication you have, so that you can let your broker know what you’re taking while you’re on the phone
  • Previous or current treatments. Be sure to share your treatment history here and don’t forget to mention if you’re on any waiting lists at the moment. It may seem minor and not worth mentioning to you, but it’s always best to mention everything!
  • History of procedures. This will include any surgeries you’ve had, whether under local or general anaesthetic. If you have anything coming up, be sure to mention it here
  • A history of stroke or diabetes.

You may also be asked about hobbies, if you have any high octane pursuits that could potentially risk your life.

Don’t be tempted to bend the truth at this point. If you’ve quit smoking, be honest about that rather than saying you’ve never smoked. Morbid as it sounds, if you were to die because of a smoking-related illness, but had claimed you hadn’t smoked in your life, this could affect your Life Insurance payout upon your death.

What types of cover are there? 

There are various kinds of Life Insurance cover, and it’s worth taking some time to think about what your goals for Life Insurance are and planning accordingly. 

Let’s dig in and see what kind of Life Insurances are available!

Whole of Life Insurance

Many types of cover only pay out if you die before a date specified in your policy. Whole of Life cover pays out no matter when you die.

As you might expect, this type of policy is on the more expensive end. We’ll look at cheaper options below.

However, if your main goal is to leave a nest egg for the people you’re leaving behind, this is a good fit. It’s also great if you are worried about how much you’ll spend after an initial term policy ends. 

Level Term Life Insurance

Unlike Whole Life Insurance, this has a fixed term and will only pay out if you die within a specific time period. 

This is ideal if you are looking to make sure that the mortgage is paid off in the event of your death. If your mortgage is fixed at 35 years, there is no need to extend your Life Insurance beyond that. This way, you know that if you were to die before your mortgage was paid off, your Life Insurance would cover the outstanding balance.

This will be a little cheaper than Whole Life Insurance and you can rest assured that your payout will stay the same throughout the policy – whether you die early on in the policy or close to the end. 

However, you must remember that there won’t be a payout if you die after the end of the policy. 

Decreasing Term Insurance (Mortgage Life Insurance)

If you’re after a cheaper policy, a Decreasing Term policy could be the right fit for you. In return for a cheaper monthly premium, the payout will fall every year.

This is a good fit if your only worry is to cover the outstanding mortgage – your mortgage will fall every year and your payout will fall in line with that. 

If your only concern is paying off the mortgage and you don’t get a Decreasing Term Mortgage, after several years of paying off your mortgage, you could find yourself ‘over-insured’ and paying out more per month than you need to. 

Increasing Term Insurance

As you might imagine, this is the opposite of Decreasing Life Insurance, with payouts potentially going up every year instead of down. 

With an index-linked policy, your payout is tied to inflation, or you can arrange for a policy that rises by a fixed percentage every year. 

You won’t be surprised to hear though, that this will mean your premiums are likely to be much higher, so again, think about your goals before you commit. 

Renewable Term Insurance

This policy covers you for a fixed period, which you can then extend when that period ends quite simply, without worrying about any more medical checks. 

However, your monthly payment may increase based on your age, but apart from that, it’s a straightforward renewal, as any new health problems shouldn’t be taken into account, so you won’t be paying a higher premium if you’ve developed a medical issue since taking out the original policy. 

Joint Life Insurance

We’ve mentioned Joint Life Insurance before, but don’t forget this is an option when taking out your policy. It is likely to be cheaper than paying out for two individual policies, and will cover your partner in the event of your death. 

However, Joint Life Insurance only pays out when one of you dies, it won’t pay out again when the surviving spouse dies. If the surviving partner would like to leave something to family or any dependents, they would have to take out a new single policy.

If your marriage or long-term partnership comes to an end, you will need to make a decision about the joint cover you had taken out. A divorce does not automatically trigger the end of your joint policy, you will need to talk to the lender about cancelling it. Until you do, you will continue paying for it and it will pay out in the event of a death. If you have children together, this may be something you want to continue, but if not – make sure you cancel it!

Death in Service

This Life Insurance is offered by your employer, paying out to your family if you die while in their employ. This doesn’t only cover death at the workplace or death caused in some way by your job or the workplace, only if you die while working for that company. 

However, Death In Service has the smallest payout, equivalent to only a few years salary, which may not cover any outstanding mortgage or other outstanding debts. It also ends as soon as you leave the company and you might not get Death In Service cover in your next role.

What is critical illness cover?

Now that you know all about the various types of Life Insurance cover you can get, now is the time to think about other elements of the policy, most notably, critical illness cover.

While Life Insurance pays out in the event of your death and supports your loved ones with funeral costs and outstanding debts, what about if you fall seriously ill?

Illness is a difficult time for the whole family, not just because of the emotional impact and worry of someone being ill, but the additional worry about money. This is where critical illness cover comes in.

If your policy covers you for critical illness and you are diagnosed with an illness like cancer, heart attack, stroke or brain tumour, that would severely impact your ability to work, a lump sum would be paid out to cover:

  • Household bills
  • Mortgage repayments
  • Loss of income
  • Private medical needs

While this won’t make up for the emotional turmoil and stress of such a time, it will remove the worry around paying the bills. No one wants to think about getting seriously ill, we all hope that we are invincible! But there is no way to know what the future holds and knowing your mortgage and bills are covered is something that will give you some peace of mind should the worst happen. 

What additional cover can I get within my Life Insurance?

While Life Insurance is one of the most straightforward insurances out there, there are some additional elements you can add to it.

Additional cover you can add includes:

  • Spouse. You can add your spouse to an existing policy, making it a joint policy, which would pay out in the event one of you died
  • Child. You can add any of your children to your policy. Make sure you understand what this means for the payouts, as the policy may not pay out in the event of your death if it has already paid out for the death of your child. You may also want to 
  • Accident. You may want to make sure that you have cover in the event of an accident, which isn’t classed as critical illness. If you were seriously injured in an accident, the same worries about covering the mortgage and bills would apply, so you might want to look into getting this additional cover

Should I update my cover?

If your circumstances change, it’s always a good idea to contact your policy provider about updating your cover as they are best placed to advise you.

You should think about updating your cover:

  • If you get married. You may want to look into joint cover or extending your policy so there is a larger payout to support your spouse. Even if you aren’t married, if you and your long-term partner are planning to invest in property together, you may want to consider updating your cover
  • If you have children. If your policy was just to cover your mortgage, you may want to consider updating it when you have children, so that more can be left to them. This could cover university fees in the future, or help them get on the property ladder
  • If you invest in more properties. If you start to build out a portfolio, it’s time to have a chat with with your broker about protecting that portfolio

How long should my Life Insurance be for?

It really depends on what you want your Life Insurance to cover. If you only want your mortgage cleared in the event of your death, you could take out Level Term or Decreasing Term insurance.

However, if your hope is that your family will receive a lump sum payment which would make their lives easier – perhaps by helping them get on the property ladder or pay for education – you may want an Increasing Term or Whole Life policy.

If you’re not sure, call your broker, who will be able to tell you how each policy varies and you can make an informed decision based on their advice. If you are every unsure, never make a hasty decision, always have a chat and take the time to consider your options before signing on the dotted line.

How can I drive my Life Insurance premiums down?

The easiest way you can do this is to shop around to make sure that you’re getting the best deal for you, both in cover and monthly outgoings. However, there are other ways you can keep your monthly premiums down.

  • Start sooner, rather than later. The younger you are when you first take out your policy, the cheaper it is likely to be
  • Choose the right term. Figure out what you want to do with your life insurance and choose the right policy, so you aren’t ‘over-insuring’ yourself and paying for more than you want or need
  • Pursue a healthy lifestyle. The healthier you are, the cheaper your insurance is going to be. Don’t ever smoke and, if currently do, quit! Think about other lifestyle adjustments that would make you a healthier person – and potentially drive down your premiums
  • Pay on time! It sounds simple, but if you miss a payment, you’ll be charged a late payment fee. Set up a direct debit so you don’t have to think about it and potentially miss it a payment
  • Look online. Online policies are often cheaper as you are usually buying direct from the insurer, rather than via a middle man who will need to profit from the sale
  • Consider your add ons. Really think about the add ons that you need before you sign up for them. If you really don’t need them – don’t get them and don’t pay for them

Is my age a factor?

Unfortunately, yes! It will increase every year you age as every year you move closer to your life expectancy. It will usually increase about 5% every year in your 40s, but could increase up to 12% a year in your 50s.

That’s a pretty steep increase, so you want to get your insurance locked in as early as possible to keep those payments low!

How much is Life Insurance?

In 2020, insurers paid out a record £3.4 billion in Life Insurance, the total value of claims was up 8% on 2019. On average, pay outs were around £79,304.

Monthly premiums vary depending on:

  • Your age
  • Your health
  • Your policy length
  • Additional cover

The monthly premiums are usually from around £16 – £30, however it can be as little as £5 if you take out the policy in your early 30s.

As always, make sure you’re shopping around to get the best deal!

Why won’t my Life Insurance pay out?

While Life Insurance can seem straightforward – a lump sum will be paid out in the event of your death – there are instances where it won’t pay out.

  • Non-disclosure. If you die due to a medical condition that pre-dates your insurance and you didn’t tell your insurer when taking out your policy, they will not pay out
  • Outliving your policy. If you’ve taken out a fixed term policy, which you then outlive – there won’t be any payout from that policy
  • Terminal illness. You are likely to get an earlier payout to support you while you’re ill, so there either won’t be any in the event of your death or it will be a smaller sum

Best Life Insurance quotes?

So now that we’ve convinced you to make sure that you have Life Insurance, you’re probably itching to get a quote. Check out the best ones below. 

If you have more questions that we haven’t covered here, or you’d just like to speak to a person, you can book a call with our great advisors, who’ll be able to answer your questions and get you a quote in minutes. 

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