Life insurance

There are many reasons why taking out a life insurance policy makes sound financial sense, not least because of the peace of mind you’ll have if the worst was to happen. If you take the right steps to protect your loved ones and your assets now, you’ll save your family and people who might be affected by your death or illness considerable stress.

If you’re not sure why taking out a life insurance policy is for you, here are the top four reasons you should think about doing just that.

1. You have children

If you have children, whether they’re still at school or college or have flown the nest, they’ll have their own set of financial needs that you’ll want to plan for if the worst was to happen to you. A life insurance policy will give you peace of mind that your family’s financial future is protected, whether covering the essentials after the loss of your income, paying for their education or providing a monetary gift to use as they like.

2. You want to cover the cost of your funeral

Nobody wants to think about how they’ll pay for their own funeral, but if not now, when? The cost of a funeral has become increasingly expensive. If you take out a life insurance policy, you can use it to cover the cost of your funeral and remove the financial burden from your family during what’s likely to be a distressing time.

3. You have a mortgage on your home

If you have an outstanding mortgage on your home, how will you cover the outstanding repayments if you become seriously ill and can’t work or pass away? If you have a partner, will their income be enough to cover them? A life insurance policy and critical illness protection will pay out a lump sum and enable you or your dependents to pay off your mortgage balance if things take a big turn for the worse.

4. You want to cover your inheritance tax burden

Depending on the value of your assets when you die, Inheritance Tax (IHT) is the tax your family will have to pay. If your assets amount to more than £325,000, your estate will be liable for the standard IHT rate, which at the moment is 40%.

Typically, life insurance covers you and will pay out if:

• You pass away during the policy term due to natural or accidental cause
• You’re diagnosed with a terminal illness and expected to live less than 12 months (term life insurance policies only)

Typically, life insurance doesn’t cover you and won’t pay out if:

• You’re not up to date with your monthly premiums
• You weren’t fully truthful on your application (non-disclosure)
• You outlive the policy term (excluding whole-of-life insurance policies, which last until you pass away)
• The cause of death is suicide (when suicide is not covered. Most insurers cover suicide after a waiting period of 12 or 24 months)

Life insurance arranged through Reassured starts from just 20p a day.

However, the exact cost of life insurance is dependent on each applicant.

Premiums are dependent on the individual applicant and will be influenced by:

• Age, health & lifestyle
• Smoking status & alcohol consumption
• Occupation & dangerous hobbies
• Type of policy, cover amount & policy length

The underwriting process will determine the level of risk you pose to the insurer, and your premiums will be priced accordingly.

Other types of life insurance include:

Joint life insurance covers two people under one policy. It pays out once if either partner passes away during the policy term, and it can be cheaper than having two single policies.

Over-50s life insurance covers you for the rest of your life and guarantees you will be paid out. It is available to applicants aged 50 – 85. No medical information is required during the application process.

Family income benefit (FIB). It offers a monthly cover amount (up to £5,000 a month) for your loved ones and can help to replace your income if you pass away during a specified term.

Income protection helps to replace your income if you’re unable to work due to illness or injury. It can cover up to 70% of your normal earnings. Short-term and long-term options are available.

No. Although life insurance is not a legal requirement for purchasing a property with a mortgage, it is generally recommended.

Without life insurance, your passing could mean that your family would be left to repay the mortgage.

Failure to meet this cost could result in the home being sold and your family having to relocate at a difficult time.

Occasionally, some lenders will request that you have life cover before agreeing to release funds.