Buying life insurance
What is life insurance?
No-one likes to contemplate death, but life insurance can be vitally important in protecting those around you should the unexpected happen. It will pay a lump sum or income when you die that they can use as they wish – to pay off a mortgage, for example, or pay inheritance tax.
Why might you need it?
It is an uncomfortable thought, but if you are the main breadwinner and you die, your family may be left financially devastated. In short order, they may be forced to sell the family home or the children may need to move schools, all at a time of significant emotional distress. It is worth noting that this can go both ways. If the main carer dies, the surviving spouse may have to pay for full time childcare, which could run to £40,000 a year or more.
Life insurance can provide protection against this scenario, giving a lump sum to help support the family. Importantly, it sits outside the estate for inheritance tax purposes, so goes direct to the beneficiary. This can be vital to pay short-term bills before probate is granted.
How does it work?
You choose the amount you want your family to receive. There are plenty of online calculators to help you. They will ask you whether you want to pay off your mortgage, support your children, or just pay for funeral costs. Once you know how much you need, how much you pay each month will depend on your age and health.
There are different options. You can get life insurance that pays an income for children, for example, rather than a lump sum. You can also get ‘decreasing term assurance’ – where the level of insurance decreases over time. This can be useful where the need for life insurance diminishes over time, such as when a mortgage is paid off or educational costs are finished.
It is vitally important that you don’t stop paying it at any point. If you stop your monthly payments for any reason, you lose your benefits and the payments you’ve already made won’t be refunded. Like marriage, life insurance is ‘til death us do part’.
It’s worth saying that it is better to do something than nothing. If you can only afford a relatively small amount of life cover, do that. You may not give your family full protection, but it will help.
How can I buy it?
This is the easy bit. You can buy life insurance online from all the major comparison websites – comparethemarket.com, gocompare.com or moneysupermarket.com. Alternatively, you can buy direct from the providers such as Vitality, Direct Line, Aviva or Legal & General. All of them have useful tools to help you decide how much insurance you need (or how much you can afford). Some also have some nice bells and whistles, such as discounted gym membership or fitbits, so it’s worth checking out the potential freebies.
How much will it cost?
It depends when you buy it. If you buy it in your thirties or forties, it may be as little as £20-£30 a month. However, it will be substantially higher if you buy it in your sixties or seventies. There are different types of life insurance, with different benefits, so you need to make sure you’re buying the right one for your needs.
Helpful links:
Aviva's Life Insurance Calculator
