Reasons to take out life insurance

5 minutes

Life insurance isn’t something people generally like to think or talk about, but it’s a way to give you peace of mind and protect your family’s future should you die.

Life Insurance allows you to provide some financial security to your spouse, civil partner and/or children.

Financial support certainly can’t compensate for the terrible loss of someone you love, but having to deal with the burden of debts and worries about finances is the last thing needed by those left behind.

It may seem like an unnecessary expense, but there are many reasons why people consider buying life insurance, even if they aren’t supporting a family.

Common reasons for taking out life insurance

  • Getting married and/or becoming a parent – starting a family brings new responsibilities and many people begin to think about how they can best protect their family.
  • Protecting household income – life insurance can be used to replace lost income, so whoever is left behind can maintain a standard of living.
  • Protecting a mortgage – whether you live by yourself, with a spouse or significant other, you may want to buy life insurance as mortgage protection, to make sure it will be paid off should the worst happen.
  • Funeral expenses – funeral expenses, burial costs and medical bills can add up to a large amount. Life insurance can be used to plan for these final expenses and you can choose an amount of cover that meets your needs.

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 and you usually have to pay it for the rest of your life.

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 usually 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. This is likely to cost more, as the cost of life insurance increases the older you get and will perhaps be less affordable in old age.