Do I need life insurance?
When considering if you need life insurance it is important to make sure you fully understand what is life insurance? Only then can you determine if it is something that you feel you need. For example, if you do not have any dependants then life insurance is probably not something you need. If you do have an outstanding mortgage then any outstanding debt would be settled once your property has been sold.
However, if you do have dependants then there are many reasons why life insurance should be something you consider getting in place.
Do you have a mortgage?
Having a mortgage is one of the biggest reasons to take out life insurance. It can be used to pay off your remaining balance and means your loved ones won’t have to worry about making the repayments at an already stressful time, allowing them to remain in the family home. Despite this only 42% of people with a mortgage do not have life insurance*.
It is important to know the type of mortgage you have as this can impact the type and level of cover you would need to adequately protect your loved ones. If you have a capital & interest mortgage then you may want to consider taking out decreasing life insurance. This means that the amount of cover decreases over the duration of the policy, normally in line with the balance of your mortgage.
These decreasing cover policies typically cost less than a level term policy for the same amount of protection. If you wish to leave a lump sum as well as clearing your mortgage, then you may want to consider taking out level-term insurance or separate policies for your mortgage and lump sum cover.
If you have an interest-only mortgage then the amount of capital you owe does not decrease as you make your mortgage repayments. You may therefore, want to consider taking out a level-term life insurance policy. This means the amount of cover you have remains the same over the duration of your policy and you would still leave enough money to clear your mortgage balance.
Do you have outstanding debt?
When you die your debts will be paid off using the value of the estate in order of importance. This means that secured debt such as your mortgage will be paid off first. Then your funeral costs and fees will be paid. Finally your unsecured debt including loans, credit cards and hire purchase agreements will be settled.
The money to clear your debt comes from your estate before anything can be distributed to your loved ones, so if you have debts then you may not be leaving them as much money as you’d hoped. Life insurance can ensure you leave them an amount you are happy with once your debt has been settled.
Would you like to leave a lump sum?
If you pass away, would your family be able to afford every day and not-so-every-day costs? Simple things such as the weekly or monthly food shop, bills, maintaining a car or even school uniform can quickly add up. You may also want your family to still be able to enjoy a holiday or think about education and university fees.
Leaving a lump sum can be a way of helping to cover these costs. It can be difficult to work out how much you would like to leave, take a look at our Life Insurance Calculator to help you calculate an appropriate level of cover.
Are you the main earner for your family?
Being the sole earner for your loved ones puts pressure on you to provide for them, if you were to pass away then without life insurance they might not be able to fund the mortgage, rent or other day-to-day expenses. Life insurance can either payout as a single lump-sum payment or regular income payments to help financially support your family.
Do you and your partner both contribute to your expenses?
If you both contribute financially to your living costs then it is important to think about how that might change if one income was lost. Would the remaining income be enough to make ends meet? Also, if you have children you might have to think about childcare costs in order to remain in work and maintain your now single income.
Would you like to cover the cost of your funeral?
Talking about your funeral plans with family members can be a huge help if you were to die, it means that they don’t have to guess as to what your wishes would have been. It’s a difficult subject, but it’s best to get it done and out of the way as soon as possible.
As well as the logistical side of planning a funeral there are also financial implications, too. You don’t want your family to be under even more stress during this very difficult period, so including funeral costs in your life insurance can help you make sure this doesn’t happen.
The average cost for a funeral in the UK in 2018 was £4,271**. But did you know the ‘Cost of Dying’ was actually £9,204 (Cost of Dying Report 2018). This takes into account all sorts of costs; transportation, catering, flowers, venue etc.
You can take out specific policies to cover just your funeral costs or you can factor it into your total policy cover amount.
Protection plans with no investment link will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained the cover will lapse.