Life Insurance: A Complete Guide

A Complete guide to life insurance. 

Here, we will explain the crucial aspects such as costs, policy beneficiaries, term life insurance, and the enduring coverage offered by whole life insurance.

Understanding Life Insurance

Life insurance is a financial safeguard that provides a lump sum to your loved ones in the event of your premature death or diagnosis of a terminal illness. This support can assist with mortgage repayments or help maintain your family’s standard of living.

There are three distinct types of life insurance:

  • Level cover
  • Decreasing cover
  • Whole of life insurance.

Level cover and Decreasing cover are types of term life insurance. Your choice between these two dictates your coverage amount, its cost, and suits varying financial needs. Decreasing cover is suitable if your aim is to settle a mortgage upon your death during the policy term. Its value, like a mortgage, diminishes over time, while premiums remain constant, hence it's often referred to as mortgage protection insurance. With level cover the amount paid out on a claim remains the same throughout the term.

Whole life insurance is a permanent form of coverage, guaranteeing a payout to your beneficiaries regardless of when you pass away. Unlike term insurance, which provides coverage for a specific term, whole life insurance ensures lifetime coverage.

However, remember, term life insurance has no cash value; if your payments stop, so does your cover. It's a one-time payout policy, which terminates post-payout.

Need clarity on life insurance jargon? Visit our glossary for life cover  to understand key terms better.

Estimating Life Insurance Costs

The premium of your policy depends on several variables:

  • Age: Older individuals typically pay higher premiums due to increased health risks.
  • Lifestyle: Unhealthy habits like excessive alcohol consumption or obesity can spike premiums.
  • Health: Pre-existing medical conditions can impact your policy price.
  • Family Medical History: A history of serious medical conditions in your immediate family could influence your premium.
  • Occupation: Dangerous professions may attract higher premiums compared to low-risk jobs.
  • Smoker Status: Smokers, including those on nicotine replacement therapies or vaping, usually pay more due to associated health risks.
  • Cover Duration: Policies with extended terms may be pricier than shorter-term ones.
  • Cover Amount: The larger your coverage, the higher your premium.

Always answer honestly when applying for a policy; inaccuracies can jeopardise your claim and negatively affect your loved ones.

Coverage Details of Life Insurance

Life insurance aims to provide financial stability to your family upon your demise. If you're dealing with a severe illness affecting your financial stability, consider critical illness cover. The specifics of coverage vary among insurers, but the underlying principle remains consistent. 

Deciding the Beneficiary of Your Life Insurance

You usually have control over the insurance payout's recipient after your demise. In joint life insurance, the surviving policyholder generally receives the payout unless specified otherwise. You can even split joint policies into single ones post-separation.

With single life insurance, the payout goes to your estate. Placing your policy into a Trust can enable you to nominate beneficiaries, offering potential tax benefits and expedited payouts. Writing a will is another option, although it may not be as tax-efficient.

Seek independent legal and financial advice before placing your policy into a Trust or writing a will.

Determining the Need for Life Insurance

The necessity for life insurance depends on individual circumstances. If you have dependents, life insurance offers a financial cushion in your absence. The payouts can assist with mortgage clearance, child-rearing expenses, and handle monthly bills. If you haven't secured financial provisions for your dependents, life insurance is worth considering.

As with all insurance policies, conditions and exclusions will apply