Why have life insurance?

Why do I need life insurance? Why is life insurance a good idea?

It's never easy to cope when someone close to you dies. Grief is a natural reaction and coping with the pain and loss can be even more difficult if there are added financial pressures. Nobody really wants to think about dying but it makes sense to plan for what could happen and help make it easier for those left behind. It won't stop the grief but it can help support your family after you die.

How will your family cope if one or more of the main earners dies?

For example:

• how will the mortgage and any other debts be repaid?
• what, if anything, will replace the regular income?
• how will your children be looked after?
• how will your children's further education be paid for?

If you want to make sure your family can maintain a reasonable standard of living without undue financial concerns, it makes sense to prepare for both unforeseen- and foreseen circumstances - and protect your family with life insurance.

Two main types of life insurance (or life cover)

Term insurance (or 'temporary life insurance') is insurance that pays out a lump sum if you die during a particular period of time. You choose how long you want to be covered for, for example you may want your cover to tie in with the end date of a mortgage, or when you retire. It can help make sure that your spouse and children will be financially secure if you die during the set term. If you survive to the end of the policy's term, nothing is paid out and the policy ends.

Whole of life assurance is insurance that is not limited by a set time and pays out when you die, whenever this happens. Because of this the premium you pay is usually higher than term insurance.

Saving money on your life insurance

It's often possible to save money on your life insurance – but it's important to make sure that you get the life insurance cover you want. And be aware that a short-term saving may lead to long-term higher costs. For example:

• a joint life insurance policy written on a first death basis will be less expensive than two separate life insurance policies. But when the first death benefit is paid out, the second life insurance policyholder may need to find fresh life insurance cover – perhaps less affordable in old age.
• a life insurance policy with critical illness cover will normally be less expensive than two separate policies. But the policy will usually only pay out once and then end.  So, if it pays out for critical illness cover, you may find it difficult to get life cover again.

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