Do I need life insurance?
Life insurance is not something that people think about very often, but if you are in the process of buying a home it's a good idea to look at whether you need it or not. Here’s what you need to know.
What is life insurance?
Life insurance is an agreement between an insurance provider and an individual in which the provider promises to pay a chosen sum of money in the event of the individual’s death within a fixed period of time in return for premiums paid.
It is often confused with life assurance or ‘whole-of-life’ insurance policy, which offers protection for a lifetime. This policy guarantees a cash sum upon the death of the individual, whenever it occurs, so it is more expensive than a term life insurance policy (which is normally for a fixed period of between 10 and 25 years).
Why do I need it?
Most people take out a policy to cover the term of their mortgage but it is also a good idea if you are renting with dependants.
If you are single and have no dependants, term life insurance might not be the right cover for you. If you are solely reliant on yourself, you might find that critical illness cover gives you all the protection you need.
Where do you get life insurance from?
You can take out life insurance at any point of your life between 18 and 90 years of age but most people buy a policy when they buy their first home. Life insurance is offered by estate agents and mortgage brokers and you can also buy it from comparison websites or from the insurers themselves.
We have partnered with Assured Futures, specialist brokers in life insurance, to help find you the product right for you. So whether you want to protect yourself or family against a loss in income or cover outstanding mortgage debt if you die, they have products to suit you from a range of insurance providers.
What are the main types of policies?
- Level term policy: The amount you’re covered for and the payments you make stay the same throughout the term.
- Decreasing policy: The cover drops in line with your mortgage if you have a repayment mortgage, although the premiums remain the same. The main benefit of a level term policy is that you know exactly how much cover you have. If you need to increase your mortgage and your policy isn’t enough to cover the loan, you can apply for a new policy to replace the existing one or apply for a second policy to cover the difference. As you will be older, it means you will have to pay more if you have any medical issues and you may find it harder to get cover.
- Guaranteed vs Reviewable: A guaranteed premium policy means that your monthly premiums stay the same throughout the term. Reviewable policies are, as the name suggests, reviewed at certain points during the term and you may end up paying more over the long term, as life insurance premiums get more expensive with age.
What things do I need to watch out for?
- Make sure you are getting a good deal: Often estate agents and mortgage brokers will offer a life insurance product from a single supplier that they partner with. By all means get a quote but remember that you may not get the best deal. Shop around and look for an insurance broker that searches the market for the best deal for you and lets you compare quotes before proceeding.
- Cancellation fee: Some policies contain cancellation fees and clauses that can tie you in for years, so make sure you read the terms and conditions properly. Check your policy does not come with cancellation fees.
What are the costs?
Life insurance premiums are paid usually monthly and the cost are calculated on a case-by-case basis.
|Type of cover||25 year term||30 year term|
|Level life insurance||£9.37 (per month)||£10.30 (per month)|
|Decreasing life insurance||£8.07 (per month)||£8.67 (per month)|
Source: Assured Futures. All quotes are accurate as at 15 February 2018
Is there anything else I should know?
- Life insurance is not compulsory, so it’s completely up to you whether you want it or not.
- If you buy a life insurance policy, it is a good idea to make a will as well that states where or who you want the money to go to.
- As life insurance becomes more expensive with age, it makes financial sense to take out a guaranteed policy in your twenties or early thirties and keep it until the term has ended.
- Look for the best deal, not the cheapest one. Paying slightly higher premiums may mean you get additional benefits.
- You may already have life insurance through your employer, which is known as death-in-service policy.
- How should I insure my home?
- Do I need a mortgage broker?
- Mortgages for the over 55s
- What happens to my home when I get a divorce / separation?
- Do I need mortgage or income protection insurance?
- Home Buyers’ Protection Insurance – is it something I should consider?
- What type of mortgage should I get?