Best life insurance policies

Life insurance explained

What does life insurance cover?

Life insurance provides cover for when you die or if you were to be diagnosed with a terminal illness. Most policies are paid out as a lump sum to your beneficiaries so you can continue supporting them financially, even after you pass away.

What isn’t included?

What’s included in a life insurance policy can vary between insurers. Some may exclude certain genetic illnesses, pre-existing medical conditions and death caused by dangerous or illegal activities, while others may cover these - albeit at a higher cost.

You may also face more costly premiums based on your lifestyle – if you’re a smoker or heavy-drinker, for instance. Nevertheless, it’s important to respond honestly when getting life insurance quotes, as omitting information could leave you without comprehensive cover.

Similarly, your cover may lapse if you fail to meet premiums, or if your policy expires.

For more information on what’s covered by a particular life insurance policy, it’s best to reach out directly to the insurance company. Meanwhile, for help finding the right level of cover for your needs, consider speaking with an insurance broker.

Life insurance costs

In most cases, life insurance premiums need to be met monthly, although some insurers may offer the option of paying on a quarterly or yearly basis. The amount you pay will depend on factors such as your age, occupation, lifestyle and overall health, as well as the type of policy taken out.

While cheap life insurance policies can be tempting, it’s important to consider whether the level of cover they provide meets your needs.

Types of life insurance

With many different levels of cover available, the best life insurance policy ultimately depends on your personal circumstances. Below, we provide a brief comparison of some of the most common types of life insurance you may encounter:

Term life insurance

Term life insurance is a policy that provides cover for a set amount of time - typically anywhere from one to 50 years. While your beneficiaries will receive a payout if you pass away during the term, bear in mind you won’t receive a refund on your premiums if you outlive the policy.

There are three main types of term life insurance:

• Level term life insurance is when your premiums (the amount you pay each month) and your level of cover remain the same throughout the duration of the term. This means, whether you were to pass away at the start or the end of your policy, any beneficiaries would always receive the same cash payout.

• Increasing term life insurance, meanwhile, accounts for the rising cost of living by having the value of your policy increase in line with inflation. To accommodate a larger payout, insurance companies will typically review your premiums at regular intervals.

• Decreasing term life insurance, on the other hand, tends to be cheaper, as the level of cover gradually lessens. Payout from this type of life insurance is often used by beneficiaries to pay off a capital and interest (or repayment) mortgage because, by meeting repayments, the amount needed to settle the debt reduces over time.

Whole of life insurance

As the name implies, most whole of life insurance policies come with no set end date and therefore offer your loved ones a guaranteed payout when you die (so long as you meet all of your premiums in the meantime).

Also known as ‘life assurance’, this type of policy is usually more expensive than term life insurance as it provides more comprehensive cover.

Over-50s life insurance

Over-50s life insurance is a specific type of life assurance that can be taken out by those aged between 50 and 80. In particular, it may appeal to those with pre-existing health conditions, as acceptance is guaranteed (meaning no medical checks are needed and you won’t have to answer any health-related questions).

Joint life insurance

Joint life insurance covers two people under the same policy. Although it’s most commonly bought by couples (and sometimes even referred to as ‘couples life insurance’), it can also be taken out by friends and business partners who share financial responsibilities, such as a mortgage.

It should be noted that, while often cheaper than taking out two single policies, joint life insurance only pays out once – either upon the death of the first or second policyholder:

• First-death policies pay out when the first policyholder dies – typically to the other insured person. At this point, the policy ends, and the surviving partner will need to take out a new life insurance policy if they wish to remain covered.

• Second-death policies, on the other hand, only pay out once both policyholders pass away. This type of joint life insurance is less common and often used for Inheritance Tax (IHT) or estate planning purposes.

Family income benefit

If you’d prefer your loved ones to receive regular financial support after you die, family income benefit (FIB) is a type of life insurance that’s paid out in smaller, monthly instalments for the remainder of the policy’s term. It could help beneficiaries meet recurring costs, such as rent or mortgage payments, gas and electricity bills or even schooling and childcare.

Terminal illness cover

Terminal illness cover is included with most life insurance policies, allowing you to make a claim if you’re diagnosed with an incurable condition and have less than 12 months left to live.

Crucially, it’s not the same as critical illness cover; this can be bought separately or in some cases added to your life insurance policy and provides a payout if you get diagnosed with a serious illness that is covered by your insurer.

Do you need life insurance?

There’s no legal requirement to take out life insurance – in fact, if you’re single and have no dependents, income protection or mortgage protection insurance may be more suitable.

However, if you financially support others, such as a spouse or children, taking out life insurance could be key to maintaining their current lifestyle if you were to pass away.