*Please note this is for information only.
What is life insurance?
Life insurance is a financial product that you pay into, and if you die within the term of the policy, the insurance company will pay out an agreed sum to beneficiaries of your choice. Depending on the type of policy, you can either pay monthly for cover or pay a lump sum upfront. This cost is known as an insurance premium.
Exceptions can be written into the policy, which could mean the insurer doesn’t have to pay out if your death is a result of suicide, fraud, war, riot or civil commotion. For example, if your death is caused by drug or alcohol misuse, or other behaviour deemed gross negligence or reckless, your life insurance policy may not pay out. Make sure you check carefully exactly what is covered by your policy before you commit.
Why do I need life insurance?
The primary benefit of investing in a life insurance policy is the peace of mind it will give you and anyone who depends on your income, if the worst should happen and you die. It’s morbid and uncomfortable to think about, but essential if you want to ensure comfort and security for those you care about. The pay out from a life insurance policy will provide for your chosen beneficiaries, who would otherwise struggle without your income.
Life insurance coverage is particularly useful if you are in one of the following circumstances:
- You are the main or sole source of income – if you die and can no longer provide an income for your family, they will struggle financially.
- You want to leave something for the next generation – a life insurance pay out can act as an inheritance, giving a financial boost to your children or other family members.
- You have significant debts – the pay out from your life insurance policy will help finance your debts, removing the stress for your family.
- You have a joint mortgage – your pay out can help your partner meet the mortgage payments once your income is no longer available.
How much does life insurance cost?
The amount you pay for life insurance is influenced by a range of factors. Information about your health and how you spend your time will alter how insurance firms calculate your costs, as these factors change the likeliness of them needing to pay out on your policy. Below are some examples of the information that will determine your life insurance premiums.
- Age – policies will usually expect you to pay more the older you are.
- Weight – being significantly overweight puts you at greater risk of suffering obesity-related illness, so your premium will be higher.
- Medical history – family history of certain diseases, or existing health conditions, will cause you to pay more as the risk to the insurer is higher.
- Occupation – if your job involves a high risk of injury or death, such as emergency services or construction, expect to pay for more life insurance than people with sedate, low-risk jobs such as accountants.
- Salary – generally, if you earn more than your expenditure is higher, so a policy will cost more as your coverage will have to pay out enough to maintain the standard of living that you and your beneficiaries are used to.
- Lifestyle – if you drink, smoke (including vaping and nicotine replacements), take drugs or indulge in other risky behaviours, your insurance costs are likely to be increased.
- Coverage required – how big a pay-out you expect will change the cost, as the more money you want to be paid out by your policy, the greater the premium is going to be.
- Length of policy – life insurance often runs for a fixed term, such as 25 years. The cost of your premium is likely to be higher the longer you want the term of cover to be.
Find the best policy for you by taking these factors into consideration before committing to a life insurance policy.
More specific types of life insurance are available.
Life insurance policies come in a variety of forms, and more specific policies are available to get you the right cover to meet your needs.
- Joint life insurance – most suitable for couples, this type of policy will cover two people on one policy. A pay-out will be made if one person dies during the term of the policy. However, only one pay-out will be made so the coverage ends on the event of death.
- Health insurance – can be used to avoid long NHS waiting lists, as the policy will cover private medical bills and expenses, enabling you to get more effective treatment faster.
- Critical illness cover – this policy will pay out if you are diagnosed with an illness that is covered by the contract. The intention is that the money will be used to pay for the required treatments and provide for your family in the difficult times that will follow. For more information on this type of policy, read our specific page on critical illness cover. (link to that page..)
- Income protection insurance – if illness or injury means you are unable to work, this policy will help you maintain the standard of living you are accustomed to. It may also pay out if you are made redundant or find yourself otherwise unemployed. For more information on this type of policy, read our specific page on critical illness cover. (link to that page..)
- Over 50s life insurance – this policy is designed specifically for those over the age of 50, so usually will not require a medical to be taken before the policy is offered, and coverage will be assured to a particular age.
- Mortgage life insurance – often used to help cover a mortgage, this policy will pay out less the deeper into the coverage you are. So, if you were to die in the first week of the term, your beneficiaries would receive a far greater pay-out than if you died years into the term.
Did you know? – the history of life insurance
The history of life insurance can be traced back to ancient Rome. Groups would form burial financing clubs, called Fratres, to help someone pay the funeral costs when a family member died. This was essential for the poorest in society, such as slaves, soldiers and other citizens of minimal means, as funeral costs could be significant. Members would pay fees at monthly meetings, and also have to contribute wine for the group to share over a meal.
The first company to offer life insurance in a modern form we would recognise today was the Amicable Society for a Perpetual Assurance Office. Founded in London in 1705 by William Talbot and Sir Thomas Allen, the Amicable Society required annual payments for shares, then at the end of the year some of the proceeds raised would be distributed among the wives and children of any members who had passed away. The Amicable Society began with 2,000 members.
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