A Guide to Life Insurance

A Guide to Life Insurance

April 26, 2024

What is life insurance?

Life insurance provides either a lump sum or periodic payments to your dependents upon your death, providing them with financial assistance after your passing.

How does life insurance work?

Life Insurance pays out a lump sum or regular payments when you’re no longer around, giving your loved ones some financial TLC. The payout depends on the level of coverage you choose. You decide how it’s used—whether it’s covering the mortgage or rent, or leaving your family a nice little inheritance.

What are the types of life insurance?

When it comes to Life Insurance, you have two main options for to choose from:

Term life insurance policies
These policies run for a set period, known as the ‘term,’ which could be five, ten, or 25 years. They only pay out if you die during the term. There are three main types of term life policies:

1) Level – Pays a lump sum if you pass away within the term. The cover amount stays the same throughout. It’s the simplest option.
2) Decreasing – The cover amount drops over time. It’s perfect for repayment mortgages, where the outstanding loan decreases over time.
3) Increasing – The cover amount rises over the term to keep up with inflation.

Whole of life insurance policies
These pay out no matter when you die, as long as you keep up with those premium payments. They’re great for covering funeral costs or Inheritance Tax planning. But heads up, they’re usually pricier than short-term policies. Plus, if you end up living longer than you thought, you might pay in more than you get out.

Whose life are you insuring?

You’ve got options: joint policy or single one.

With a joint Life Insurance Policy, the money goes to the surviving policyholder—usually your spouse—unless you’ve set up something different.

With single Life Insurance, the money goes into your estate (unless you have a trust in place), so you'll need to decide who gets it when you’re gone.

A Joint Life Policy is usually cheaper than two single ones, but it only pays out once, on the first death. Two single policies, on the other hand, ensure there’s a payout for each death.

Do I require life insurance?

YES…probably!

It’s perfect for you if you have:

• Dependents, like young kids
• A partner who relies on your income, or
• A family living in a house with a mortgage you’re paying – a life insurance policy can take care of them if you’re no longer around.

You might want a policy to cover those funeral costs.

First, check if your job's got your back. Employee packages often come with 'death in service benefits' that give you cover linked to your salary. Depending on the amount, you might not need extra Life Insurance. But remember, if you leave that job, the coverage doesn’t leave with you.

And heads up, a payout might mess with any means-tested benefits your dependents could get.

How much is life insurance?

The cost can vary depending on a bunch of factors, but Life Insurance usually gives you bang for your buck. You can snag a policy that gives your loved ones a decent safety net for just a few pennies a day.

Your monthly payments will depend on a few key things like:

• Your age
• Your health
• Your lifestyle
• Whether you’re a smoker
• Your family’s medical history
• How long you want the policy to last
• Your job – if you’re in a high-risk gig, it might bump up your premiums

The price tag also depends on how much cover you’re after. How much you need will hinge on:

• Any debts you’re juggling
• Your mortgage or rent
• How many dependents you’ve got
• Your take-home pay or other income sources