Why Do I Need Life Insurance?
One of the qualities you see with serving and ex military is that you always make sure you look after your own. After all, that's what the military is for isn’t it - to make sure you protect and defend?
But it isn't just your territory you're defending. You want to know that your loved ones are looked after in the event of anything unforeseen happening to you.
This is where life insurance comes in.
We totally understand that your mortality may not be something you particularly want to talk about.
But let’s be realistic - it’s one of the only outcomes we are guaranteed of. What we don’t know is the ‘when’.
Just a little time spent now looking at what your loved ones need in the event of your death is the difference between you and your family having peace of mind. Knowing your dependents have something else they can depend upon if your income is no longer available, can ease the pain of their loss.
If you have a mortgage in place, most mortgage providers will expect you to have a form of life insurance in place to make sure that their loan is safe in the event of your death.
Do I Need Life Insurance?
This will all depend upon your circumstances which we will explore fully with you when you take out your policy.
But in a nutshell, if you have others relying on you financially, you will all want to know that all is in order if you die. If you have financial commitments which would continue after your death, such as a mortgage or debts, you need to consider how these will be repaid. Policies such as life insurance are designed to meet that need.
If you answer yes to either of the following questions, it would be worth you taking a serious look at putting adequate life insurance in place.
● If your financial support was no longer available, would your loved ones struggle to continue with their current lifestyle?
● Would the cost implications of your death have any financial effect on your loved ones?
Not knowing how these financial commitments would be met can be worrying for a loved one or dependent.
Why Do I need Life insurance?
Without sufficient Life insurance, your loved ones may struggle to remain financially stable if you were not around. The loss of your financial support could mean that your dependents would:
● Struggle to meet mortgage repayments,
● Struggle to meet family living costs,
● Struggle to meet any funeral costs,
● Struggle to pay any debts you have acquired in your name.
What is reassuring is that a life insurance policy could cover all of this from as little as 25p per day.
Should I get Life Insurance If I’m Single?
There is a strong argument for not needing life insurance if you are single. But the reality remains that there will be a funeral cost to cover upon your passing away, which could fall to your next of kin.
Funeral costs have risen substantially and you could easily be leaving your loved ones with a debt of between £5000 - £10,000.
This isn't a small amount for families to find, particularly if it was unexpected, so knowing that this will not be the case could provide peace of mind for all of you.
It's also worth noting that life insurance is cheaper the younger you are, so arranging for this from quite a young age could be a smart move.
If you had started a policy already and met a partner or started a family further down the line, your existing policy would be easier to extend to meet your new requirements than starting a new one from scratch.
Life insurance companies like to know as much about you as possible to assess their risk as accurately as they can. Having a history of you and your health to work with already when you truly need the policy for your dependents will work in your favour.
This is exactly the same situation as if you have no dependents - you may like to think about a little forward planning before you have the financial commitments that come of having dependents.
What Type Of Life Insurance Do I Need?
As with any financial products, it will always be fully discussed as to what your exact needs are at the time of you looking to take the policy out.
Just as a whistle-stop tour though, here is an overview of life insurance differences:
There are two main types of life insurance policy available.
One is called a Term Insurance policy.
These are the type which, as their name suggests, have a set term which you are covered for, such as 10 years. Both the premiums and policy expire after the end of this date with a fixed term insurance and there is no payout at the end of it.
It is an insurance policy in its simplest form. You are covered for a period of time and if there is a claim during that period, you will be covered.
But if you reach the end of it, it all just stops with nothing being payable.
There is also the type of policy called a Whole Of Life policy.
This is where you are covered for the whole of your life rather than just a section of it.
There are pros and cons to either type and it’s important to note that neither are intended as a savings vehicle, they are both intended to provide a payout should you die.
What Types Of Term Insurance Policy Are There?
Term policies have various types with the most common types being Fixed Term as well as Whole of Life Insurance
Fixed Term Insurance Policies
This type of policy is where there is a fixed amount paid out if you died during the policy duration.
A Level Term Insurance is one of the most common types where the amount paid out doesn't change and the premiums don't change either. This type is particularly good for planning as you know in advance exactly what you will be paying out as well as knowing exactly what you will be paid out.
So this type of policy is ideal for covering the costs which would be lost if you passed away, such as:
● Living expenses,
● The cost of a funeral,
● A mortgage or loan amount,
● Leaving an amount to loved ones, such as inheritances
Level term insurance policies are the most common life insurance taken out alongside an interest-only mortgage, as the capital on the mortgage is not reducing with time.
That makes this term insurance one of the cheapest ways to cover yourself to pay out while that mortgage is still in place.
A Decreasing Term Policy is similar but is more aligned with covering a repayment mortgage. The term ‘decreasing term’ can seem a little misleading as it isn't the term that decreases, it's the amount of cover.
With time, the amount of cover on the policy decreases, often in line with the debt on your repayment mortgage. Obviously, as you pay off your capital on your mortgage, the risk to the mortgage company reduces, so you don’t need the same level of life cover throughout the whole period.
So, during the term of the decreasing term policy, it is the most expensive at the start as that’s when the most cover is needed, but it gets cheaper as the mortgage loan capital reduces. Again, there is no payout at the end of these policies.
Whole Of Life Insurance Policies
A Whole of Life Insurance Policy has a different structure altogether.
This type of policy, again as the name suggests, covers you for your whole life so effectively guarantees a payout. This type of policy is more expensive because of that factor.
So at the outset, you will agree a fixed lump sum to be paid out if the worst happens to you,
The benefit of a whole of life policy is that it accrues part of its value while you are younger. For example, if you took out a policy at age 30, the cost of life cover would be cheaper than you taking out a new policy at age 55 for instance.
The policy kind of ‘banks’ a value in the early days to offset against the more expensive premiums that you would be paying if you were to effect a brand new policy in your later years. So the cheaper premiums in the early days subsidise the more expensive premiums that would be due as you age.
Taking out a new policy in your 80’s would be extremely expensive, so these policies are designed to help you plan for that, knowing that you are covered for life.
Whole of Life policies are more expensive than a standard term insurance due to the term insurance having a possibility of not ever paying out.
A whole of life policy also has premiums payable for its entire term.
So whilst it may be tempting to think that a whole of life policy is a better fit for you, knowing that you are always covered, you will need to bear in mind that as you age, your policy can become more expensive with the increased risk of death as you age.
You will also need to allow for the fact that the payments themselves are a cost you will need to ensure you can meet in the later stages of your life after retirement when your income may not still be at the same levels as whilst working.
Do I Need To Get Life Insurance If I Don't Have A Mortgage?
Large loans or mortgages are often a reason to take out life cover but there may be other reasons that you may wish to leave your dependents with a lump sum.
As we mentioned before, there are funeral costs and any debts you may have or maybe you would like to leave your loved ones an inheritance?
It isn't something we enjoy saying, but sadly it isn't cheap to die these days and we don’t get to choose when it happens.
You’ll want to know that you're not leaving that burden to your loved ones at a time they will also be having to come to terms with your death
Life insurance payouts can be the difference between your death being more bearable for your dependents knowing they don't have the added worry that they will have to deal with the financial implications of your last income.
We promise it isn’t as scary as it seems! We will have a friendly chat with you to work out which type of policy best suits your needs both now and going into the future.
Speak to our team and we’ll make sure you have the perfect policy for you.