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A Short Guide to Life Insurance in the UK

    Life insurance is an essential component of financial planning, offering peace of mind and financial security for you and your loved ones. When you get a life insurance plan you pay a monthly premium and if you pass away, your beneficiaries get an agreed sum of money. The premium will vary depending on various factors such as your age, health/medical history, lifestyle (do you smoke, vape, drink alcohol, work in a dangerous occupation, participate in risky activities), type of policy, and how much cover you’re looking for. Typically, it’s better to take out a life insurance policy when you’re younger, as you’ll be in better health than when you’re older. Regardless of your age, it’s good to have a life insurance policy if you have dependents such as a spouse or partner who isn’t the main breadwinner or is a homemaker or stay at home parent or you have children.

    If you have a mortgage that you’re still paying off, you might want to consider a life insurance policy that lasts as long as or longer than your mortgage term so it can pay off your mortgage in one lump sum so your spouse, partner, or family don’t have to worry about that burden and they can own their home free and clear and have peace of mind knowing that big weight is taken off their shoulders.

    In this post, we’ll talk about why you should get life insurance and the different types of life insurance.

    Why get life insurance?

    There’s a lot of uncertainty in life and you might get those 3 o’clock worries, thinking about what would happen if the worst were to happen, what would your loved ones do? You want your loved ones to have the peace of mind knowing that their needs are being taken care of and in the early days they can take the time to grieve and look after their mental health without having to worry about the bills, the mortgage, other debts, and funeral costs.

    Types of Life Insurance

    There are a few types of life insurance policies here in the UK such as term life insurance, family income benefit insurance, whole-of-life insurance, and relevant life for businesses.

    Term life insurance runs for a specific period of time such as 10+ years and comes in decreasing, level, and increasing terms. You could also get a joint term life insurance policy for you and your spouse or partner in case you or they pass away.

    Of course, the cheapest of these three would be a decreasing term life insurance policy because it decreases over time as you pay off your mortgage. Level term insurance, as it says in the name, pays out the same whether you die early on in the term or later on. Increasing term is useful for paying the everyday expenses like bills and council tax and it pays out more over time with inflation either based on a set percentage each year or based on the retail prices index (RPI), obviously this would be the most expensive plan.

    Family income benefit insurance pays your beneficiaries a certain amount monthly instead of a lump sum until the policy runs out. The later in the policy you pass away, the less time that the monthly payout is for. This could be useful for making sure your kids’ needs are taken care of until they’re able to be independent or helping out your spouse or partner afterwards, giving them a safety net so they have time to get back on their feet. It’s also possible to add critical illness cover to a family income benefit insurance plan in case you end up getting an illness that affects your ability to work.

    Whole-of-life insurance isn’t based on a term, but rather one that guarantees a lump sum payment no matter when you pass away, so long as you keep paying your premiums. The coverage can be level or increase over time. The big pro here is that it lasts longer than term life insurance. The downside is if you don’t pay your premiums, the policy will be cancelled. So if you’re on a fixed income, you need to ensure that you can afford to pay the premiums. This will be more expensive than term life insurance, but everyone passes away at some point and the money can be useful in paying any tax bills or funeral costs. You also may be able to cash out a whole-of-life insurance plan early, but you won’t get as much money.

    In some situations it might be best to take out more than one insurance policy with each one being a different type.

    For more information on the various types of protection, read this blog post.

    In Conclusion

    It can be a bit difficult to navigate getting an insurance policy with there being a variety of different plans and all of this terminology, but we are here to help and if you need advice on this, you can book a free discovery meeting via Calendly and we can have a friendly chat about your situation. If you prefer to contact us via telephone or email, all of the contact information can be found here.

    Talking to a financial adviser can help you find clarity and figure out the important questions like how much money your loved ones would need to live comfortably and from there, we can help find the best insurance plan for you.