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Do you need life insurance?

15th July 2020 Print

Nobody likes thinking about their own death. But if you have a partner, children or any other relatives that depend on you, you may find that a life insurance policy will help you provide for your family even when you do eventually pass away. This is because life insurance can pay your dependants money as a lump sum or as regular payments if you die. This way, they’ll still have the money to pay the mortgage and other living expenses. However, that said, life insurance isn’t compulsory and it’s not something that suits everyone.

To help you decide whether you need life insurance, we’ve put together this guide on the steps you should take before you take out a policy. This way, you’ll be able to understand whether the product is right for you and make an informed decision.

#1 Can you find a reputable provider?

Before you take out a life insurance policy with any provider, you need to do your research on the company you’ve found. So, make sure you take a detailed look at each provider, the policies they offer and their reputation in the industry. If you see customer-driven ratings like these Royal London life insurance reviews, you’ll know that your chosen provider is trustworthy and likely to pay out. However, in such a saturated market, there are some less-than-reputable providers, so it’s always worth researching that provider’s history and seeing what their current (or past) customers think of them. This way you’ll know that, should the worst happen, your loved ones are properly protected.

#2 Are you sure you understand the product?

As well as finding a reputable provider, you also need to make sure that the product they’re offering suits your requirements. Remember, the amount of money your dependants receive will depend on the level of cover you choose. You’ll also be able to choose how you’d like the money to be paid out and whether it should cover specific payments.

There are lots of different products on the market, but they generally fall into two broad categories:

Term life insurance policies: these run for a fixed period of time, usually between five and 25 years. You’re then covered by your policy for the entirety of the term and you’ll receive a pay out if you die during that period. However, there’s no lump sum payable at the end of the policy term and you’re no longer insured from the date the policy ends.

Whole-of-life policies: These policies continue indefinitely, as long as you keep making your monthly premium payments. As a result, you’ll receive a payout no matter when you die.

#3 Do you understand exactly what the policy does and doesn’t cover?

Before you take out any financial product, you need to make sure you understand what it actually covers. For example, some life insurance policies provide what’s known as a ‘terminal benefit’, but others do not (this provides you with cover if you’re diagnosed with a terminal illness).

Crucially, your life insurance policy will usually only cover you in the event of your death. So, if you suffer from a disability or cannot work because you become ill, your policy wouldn’t cover you and you’d need to find an alternate method to provide for your family. If you’d like your cover to include illnesses and disabilities, then you’ll need to take out separate critical illness cover.

You’ll also need to check the fine print carefully before you commit because life insurance policies often come with some exclusions. For example, some policies will ask people who take part in sporting activities to pay extra to cover the additional risk, while most will also not pay out if you die from drug or alcohol abuse.

Similarly, you’ll also need to declare any pre-existing health conditions you have before you sign for the policy. This is because most insurers will exclude any death that’s related to that issue as part of the policy.

#4 Does the policy actually suit your needs?

In addition, before you sign on the dotted line, consider whether you really need life insurance, or whether it may complicate matters. Plus, as this guide from the Money Advice Service outlines, the cost of life insurance varies dramatically, so you need to understand whether it’s cost-effective for you to be covered.

Generally speaking, life insurance policies are really popular with people who have children or partners who rely on their income. This is because the money you would receive from the state is likely to be much lower than what they’d receive from a life insurance policy, and it may not be enough for your family to pay the bills without your income.

However, if you don’t fall into one of these groups, you may decide that life insurance is an unnecessary expense. This may apply if you’re single and don’t have any dependants, or if you decide that your partner earns enough money for your family to live on if you die. You should keep in mind that, according to Moneywise, less than a third of people in the UK have life insurance. So, if you choose to go without, you won’t be alone.

Finally, if you decide that life insurance is right for you, it’s worth double-checking that you’re not already covered by a different policy. Many employers in the UK now provide their employees with benefits and one of these is often a ‘death in service’ benefit which means that your family will be paid a lump sum if you die while working for the company. This will usually be a multiple of your annual salary. If this applies to you, you may decide that this lump sum is enough and you do not need additional life insurance. However, you’ll need to keep in mind that, if you leave that company, you’ll no longer be covered by the policy, so you may need to take out life insurance at this stage.

Follow these steps and you should be able to make an informed, balanced decision whether life insurance is right for you. Remember, life insurance isn’t for everyone, but it could provide you with valuable peace of mind. If you’re still unsure about whether life insurance is right for your situation, contact a financial adviser and seek your family’s advice. After all, the decision affects them, too.