Do I need a life cover insurance?

Everyone wants to be safe - it is one of the fundamental human needs. Unfortunately, accidents happen, and at a certain age, being aware of them certainly doesn’t make you feel any better. While death cannot be avoided, it is possible to limit its financial consequences, for example with life cover. We believe that the sense of security and added stability that a policy provides is extremely valuable, but we wouldn’t be ourselves if we didn’t back up this position with a handful of facts and statistics.

What is life insurance?

Life cover is primarily to protect your loved ones from your death

Life insurance, sometimes called a life cover, is a special type of contract between you and an insurance company. It is an arrangement in which the insurer agrees to pay a certain benefit to your loved ones if you die before a certain age and do not break the general rules. In return for the protection, however, it charges monthly premiums. For the sake of formality, we must add that, yes, there are cases where the money is refused - this happens, for example, if the insured person takes out the contract and, shortly after this event, takes his or her own life.

Why do I need life cover?

Life cover in the UK can help your loved ones when you are gone.

Now let’s consider why we actually buy life cover in the UK. There are several reasons:

Financial security for your family

The essential role that life cover plays is, of course, to protect your loved ones from tragedy in the form of the death of the person responsible for providing for your family. A life insurance policy won’t protect you from bereavement, but it will provide your children and your partner with the means to sustain their livelihoods, help fund a funeral or pay for university tuition fees.

Taking out a mortgage

Unlike many European countries, in the UK you are not obliged to purchase life insurance when taking out a mortgage from a bank. However, the policy is an additional way of providing security for both parties - in the event of your death, your family will be able to settle their principal obligation very quickly, while remaining in the home they previously lived in. On the other hand, the bank will not have to collect the property, which is costly and often disadvantageous for the bank.

Additional inheritable assets

Few people remember that the funds paid out from a life insurance policy will increase the value of your estate. Although the protection period usually lasts until the age of 65 or 70 - and each of us would like to live longer - there is a real risk that your loved ones will be entitled to receive the insurance sum. This is a particularly important aspect for those who decided to have children later in life and would like to additionally support them in the event of their premature death.

In addition, you need to bear in mind the risk associated with the loss of income of one of the family members. It is often the case that one spouse earns more than the other. In such situations, death can cause huge financial problems. Things are even worse if you have dependent children, and besides the mortgage, you are also repaying a car lease or loans.

Do I need a life cover policy?

Buying a life cover in the UK is not compulsory, although as we have mentioned, common sense often dictates it. It is up to you whether you want to protect your loved ones in the event of a tragedy in the form of your death.

However, if you do not have a family and are not planning to start one, you may want to consider buying other products that will work potentially better. It may be that Income Protection insurance will prove to be the solution to your problems, but you need to bear in mind that the procedures associated with a funeral or vacating your home can be extremely expensive. You can, of course, build up adequate savings to protect yourself from these situations, but a safer method would be to purchase a life cover policy, even for a relatively small amount.

Life cover in the UK – what sum to choose?

Choosing the right amount of insurance is not easy and it is impossible to make a top-down estimate without an in-depth analysis of your needs. Obviously, the higher the benefit amount the better, but this also translates into the premiums you pay each month. You need to remember that premiums have to be paid regularly, and cancelling this expense basically automatically means terminating your contract with the insurer.

When choosing life insurance, it is worth analysing the following factors:

• The value of your mortgage – We definitely recommend that the sum insured is at least close to the current mortgage balance. After all, you could pass away in 40 years or next week, which could lead your family into very serious financial trouble.

• Your age – You need to be aware that the earlier you start paying premiums, the lower they will be. In practice, each subsequent year of delaying entering into the contract translates into even several per cent higher insurance costs or, at the same monthly cost, a lower benefit amount paid out in the event of your death.

• The financial situation of your family – If you have tens of thousands of pounds in stocks, bonds, or investment funds, your family has financial reserves allowing them to get through both better and worse times. However, if you know that you save very little or not at all, a life insurance policy will partially compensate for this.

It is also worth referring to statistics—the average amount for which life insurance is taken out is just over £73,500, which is about twice the average annual salary. However, let’s note that you will easily find insurance with a sum of £30,000 as well as those that provide for a payout of even £750,000 or a million.

Most often, the choice of the sum insured is determined by the amount of monthly premiums. In the case of the cheapest policies, which for people aged 30 can be less than £30 per month, the benefit will not be too impressive. However, even £20,000 or £30,000 is much better than a complete lack of money. In practice, virtually every person under 40 can easily afford to purchase life insurance, and those of a more advanced age will simply have to allocate a bit more funds for this purpose.

You will find more interesting independent information on this topic at: Life and protection insurance.

Life cover - key information in our article.

How many years to take out life cover in the UK?

In this case, there are exactly as many positions as there are experts in our industry. Each insurance specialist will recommend a slightly different approach, depending on the individual needs of the client.

On the one hand, we can assume that we need insurance cover the most if we have dependents ( children, for example). In that case, the contract should last at least until the youngest of your offspring reaches the age of 25 - the age at which most people can already be financially independent. Remember also that if you are looking to secure a source of income for your children, a potentially better option is to purchase family income benefit insurance.

However, there are other positions. Many people choose to buy life cover that will last until retirement age. This is also a good approach, although we need to bear in mind that when we retire we may not have accumulated a large enough financial cushion in savings, because we will have been allocating funds to life insurance premiums.

A third option is to buy a policy that lasts as long as your mortgage payment. Obviously, this applies to people who see insurance as additional security for their family property. This is also a very sensible idea, however we wouldn’t treat the policy solely in this way - good life cover in the UK doesn’t have to be expensive at all and it’s worth taking out a longer term policy than just 25 years. Many people have to take out a new contract when they are 55-60 years old, which is often completely unaffordable when they could be using the product they bought when they were younger.

How much does life cover cost in the UK?

In fact, the cost of a monthly life insurance premium starts from as little as a dozen pounds, but the rate depends on a number of factors - including:

• Age of the insured person - the younger the insured, the lower the premium;

• Lifestyle of the insured - smokers will pay more;

• Sums insured - a higher benefit means higher premiums;

• The health status of the insured person - past medical conditions and BMI index may be relevant for some companies;

• Period of insurance - the longer the contract lasts, the higher the premiums will be, as the risk of death during the insurance contract increases;

• Special circumstances - people involved in extreme sports will usually pay more for their insurance.

That’s why it’s difficult to give us a specific amount right away. However, we can do so after a short meeting with our agent - we will provide you with a comprehensive insurance quote tailored to your needs and requirements. To arrange a free, no-obligation consultation, contact us today!