No-one looks forward to buying an insurance policy. Cars should be dent-free, pets should enjoy good health, and water pipes should resist a winter frost rather than flooding the kitchen. We’d rather stroll in the sunshine than shelter under an umbrella, but it’s better to have one just in case. Generally, we buy insurance in the hope that we’ll never need it, and that we’ll avoid the thing it protects against. Life insurance is the exception because we can’t avoid death, and if you’re getting your personal affairs in order or making end of life plans, you need to weigh up your options.
Life insurance can pay out either a lump sum or continuing income (depending on your plan) in the event of your death, and it’s designed to protect those loved ones who are financially dependent on you. Too often people who’ve been bereaved find themselves having to move house if they can’t keep up with mortgage repayments, or getting into debt to cover funeral costs, but life insurance can be tailored to suit your circumstances and to meet your financial obligations. In working out whether you need it or not, think about how the lives of your loved ones would be changed financially if you weren’t around. Factor in mortgages, childcare, the standard of living you’d want to continue, and the everyday cost of running a household, and consider how a life insurance policy could provide security for them and peace of mind for you.
What you opt for depends on your needs and circumstances. As part of your end-of-life planning, assess what you need life insurance to do and what the terms of any existing arrangements are. If you’re employed, you may already have death in service cover, a benefit which usually pays a tax-free lump sum to your beneficiaries based on your salary. If so, check the terms as it might not cover everything life insurance could, and it’s only valid while you’re with that particular employer. Some pension plans will end when you die, while others may include lump sums or income payments to your nominated beneficiaries. If you haven’t started drawing a pension before your death, your beneficiaries could be entitled to withdraw the total value or set up a retirement income, depending on the regulations applied by your pension provider, so you should explore your options when making decisions about additional life insurance.
Premiums will be lower if you opt for term life rather than whole life insurance, but bear in mind that there’s a maximum length to term insurance, and it only pays out if you die during that period. If your family medical history means you’re at risk of critical illness, life insurance and income protection policies can support you with medical expenses or if you’re unable to work. Other policies also include terminal illness cover which pays out when you’re diagnosed with an end-stage condition (rather than when you die).
The cost will depend on things like your age, health, lifestyle, occupation and level of cover needed (based on debts, mortgage, dependents, desired lump sum and so on) but if you decide it’s an investment worth making, you can explore your options via your bank or mortgage provider, insurance broker, financial advisor, or from comparison websites. You should always make sure it’s tailored to your specific requirements, and also be completely honest when making your declarations to avoid future disputes when a claim is made. As with other end of life planning, review what you’ve got in line with other changes in your life, so it keeps up with your needs. Not everyone needs life insurance, but it’s reassuring to know that anyone who depends on you can continue to do so after you’ve gone.