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The Importance of Life Insurance

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If you are keen to protect the financial future of your loved ones, then taking out life insurance may have crossed your mind.

Life insurance is a crucial policy for households relying on a single income source. It’s a shield against the financial vulnerability that could arise if the primary earner passes away. By ensuring a steady income for your family, life insurance provides a sense of security that’s hard to match.

There are many situations in which taking out life insurance is important. But how do you know whether you are in this position at the moment? 

In the blog below, we have given a clear overview of this subject – including whether you should consider taking out life insurance yourself. Keep reading for all the answers you need.

What is life insurance?

Taking out life insurance means receiving a lump sum of cash if a particular individual dies. It is common for families to take out this type of policy if just one person earns money in the house because it means that if that individual passes away, the survivors won’t be so vulnerable.

It may especially make sense to take out a policy if that person sometimes puts their life at risk through work or a pastime. 

There are two main types of life insurance: term life insurance policies, which expire after a certain number of years, and permanent life insurance policies, which remain in place until the person dies, stops paying, or cancels the policy.

When you take out life insurance, it is crucial that you accurately inform the insurer about the circumstances of the individual being protected. For example, this must be disclosed if that person has an illness. These details will impact the offer that you receive.

How much does life insurance cost?

According to Compare the Market data, the average cost of life insurance is a mere £8.39 per month. This relatively small investment can bring significant relief, considering the potential payout in the event of someone’s death. 

If you want a quote for a life insurance policy, you should contact an insurer directly or go on a comparison site to find out what is available.

Why do people take out life insurance?

If there is only one earner in the household, it may seem imperative to take out life insurance so the rest of the family has enough money to survive in the event of their death. This is especially important if the person puts themselves at risk through their job or pastime. 

Family cases for life insurance

Life insurance often becomes a priority after significant life events. For instance, if you’ve recently married or welcomed a child, your financial responsibilities have likely increased. In such cases, life insurance can be a prudent step to secure your family’s future.

It is also quite common for life insurance to be taken out when a family is administering probate for a loved one – as this can serve as a reminder of our mortality.

Mortgages protected by life insurance

Separately, some mortgage providers will likely offer you a mortgage if you have taken out life insurance. This can protect the bank if the primary person paying off the loan passes away.

As mentioned further above in this blog, the monthly payments involved with life insurance are usually very low compared to the payout that your family members may benefit from.

Lastly, in a more holistic sense, life insurance can provide peace of mind to all family members.

Disadvantages of taking out life insurance

Taking out a life insurance policy has few drawbacks, which is why so many people choose to do it.

Although the monthly payments of around £8 for a life insurance policy may seem small, this can add up for a family where every penny counts. Furthermore, if you are an elderly person with not long left of your life, then it may not seem worthwhile to take out life insurance anyway.

Term life insurance differs from permanent life insurance because it has no cash value and no investment component. If you are alive when the term ends, the policy lapses and you and your beneficiaries will not receive any money.

Should I take out life insurance?

Not surprisingly, life insurance is one of the most common types of insurance. It requires a minimal amount of money from you each month but can potentially have an enormous effect on your loved ones’ financial situation if the worst happens.

If you have £100 to spare each year, then it is generally recommended that you consider a life insurance policy. It can make a big difference even if you need to cut your costs elsewhere to pay for this.

You should talk to an insurance expert who can explain the different types of policies available and which would be most suitable for you. 

Is there a difference between life Insurance and mortgage protection insurance?

Yes, there is a difference between life insurance and mortgage protection insurance.

Mortgage protection insurance covers your mortgage payments while you are out of work. This is different from life insurance, which pays out a lump sum if you pass away.

People with an element of risk involved in their lives may consider both insurance policies – either by an activity they do in their free time or their occupation.

What sort of questions will I be asked when applying for life insurance?

Your insurance policy provider usually wants to know anything about your health, impacting your likelihood of passing away. Therefore, the policy will pay out. 

All sorts of factors are relevant for a life insurance police, including:

  • Smoking habits
  • Your age
  • Family medical history
  • Hobbies
  • Alcohol consumption
  • Your occupation

It’s of utmost importance to be completely honest when answering the questions for your life insurance application. Your answers will directly impact the offer you receive. Misleading the insurance provider can have severe consequences, potentially resulting in no payout or a significantly reduced sum.

Will my life insurance payments change over time?

The answer to this question depends on your policy. If you have a guaranteed premium life insurance policy, you will pay the same amount every month until the policy expires. On the other hand, if you have a reviewable policy, the insurer can change (in most cases, increase) your monthly payments. These changes in monthly payments are usually relatively small, though.

What happens if I am late on my life insurance payments?

If you are unable to make your life insurance payments on a regular basis, the policy will likely be canceled. 

Insurance providers usually have a ‘grace’ period during which you can make the payment late—and if you call them and inform them of the situation, they are more likely to be understanding, too. 

You mustn’t bury your head in the sand if you find yourself in this position. Communicating with your insurance provider should almost always be the first step.

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