Life is uncertain and anything can happen, which is why we should be prepared for the worst, just in case. This is where life insurance can help you get peace of mind by providing a pay out if you die during the term of the policy. It means your loved ones or dependants will have a little help managing their finances when you’re gone.

Do you need life insurance?

The payout from a life insurance policy can help cover any financial commitments you have, which may fall on your family if you die. These could be mortgage payments, children's university fees, or any recurring expenses.

How does a life insurance policy work?

Life insurance pays out a lump sum payment to your family, or whoever you name on the policy, if you pass away during the term of the policy, provided that you meet your provider’s terms and conditions and you pay the monthly premiums.

Every provider has its own terms and exclusions, but most insurers will not pay out if you die due to suicide, drug overdose or as a result of a risky or reckless act.

You can use this comparison to find life insurance companies that can provide you the cover you're looking for.

What types of life insurance are there?

Policies come in several different types that offer varying levels of cover to suit your needs. Some of the most common types are:

  • Level term life insurance: This is the simplest life insurance, where you choose the amount and term of the insurance at the outset. The payout for this type of policy remains fixed, regardless of when a claim is made, as long as it is within the term of the policy.

  • Decreasing term life insurance: With this policy, the amount of cover decreases over time. It’s generally used to cover debts, such as mortgages, which is why it’s often known as mortgage life insurance. It’s usually cheaper than level term insurance and is a good option if you are comfortable with the amount of cover decreasing over time, while the premiums remain the same throughout the term.

  • Critical illness life cover: This is a form of insurance that can be added to a life insurance policy. It covers you if you’re seriously ill or are diagnosed with a severe medical condition during the term of the policy. In most cases, critical illness cover pays out a fixed lump sum. The pay out can be used to pay medical expenses or help your family financially during your illness.

  • Over 50s life insurance: This is for those aged 50 to 80 years old. An over 50s life insurance policy does not require you to provide a medical history, and anyone in the age range is guaranteed acceptance. You pay for it through fixed premiums until you’re 85 or 90, depending on the provider. After that, the premiums end, even though you will be covered until you die. Over 50s life insurance usually comes with a qualifying period that can range from 12 to 24 months. If you pass away during this period, your family will not receive the lump sum payout but they will be entitled to the premiums you paid in.

  • Whole of life insurance: As the name suggests, a whole of life insurance policy covers you for life. You pay a premium each month and it pays out a fixed lump sum when there’s a claim. With whole life insurance, the insurer invests your premiums into a fund. It spreads the investment across stocks, bonds, property and cash, and pays out from the same fund when you claim. One thing to remember is that it’s possible that the insurer may increase its premium to cover its payouts if the investment fund performs poorly. But the amount of cover you receive will be the same.

How to choose the best life insurance for your needs

The best life insurance covers your circumstances. Start by taking stock of your debts, your family’s needs and lifestyle. This will help you figure out the amount of cover your need and how long you need it for.

Choosing the amount and length of cover

Typically, the amount of cover — known as the sum insured — should be large enough to cover the remaining balance on your mortgage. Then, there should be enough left over to make it easier for your family to cover some of their expenses when you’re gone.

The term of your life insurance policy should be at least as long as your mortgage. This will ensure that the pay out will cover the remaining balance on your mortgage.

How much does life insurance cost?

Life insurance costs depend on a number of factors, such as:

  • Your age
  • Medical history
  • Smoking habits
  • Alcohol consumption

Along with thee amount of cover and the length of the policy, these factors will determine how much you’ll pay for your life insurance.

Insurers calculate the probability of your unexpected passing and base part of your premium on this. For example, if you’re 30 years old, have a clean medical history, never smoked and only drink occasionally, your premium will be cheaper than someone who is 45 years old, smokes and has a pre-existing condition for the same amount of cover.

Premiums for most life insurance policies are fixed, which means your premiums will never increase. It's a good idea to compare different policies and understand life insurance quotes based on what they offer and what you would be paying for.