Do I need life insurance? Check you have the right protection with our handy guide

ARE you weighing up whether you need life insurance?

Millions of cash-strapped Brits are going without, but experts warn this could be leaving their loved ones facing huge hardship in the event that the worst happens.

Only around a third of people in their 30s have enough life cover, according to wealth firm Hargreaves Lansdown.

While that rises to 47% of those in their late 40s, that still leaves a huge gap.

The shortfalls are even more worrying among couples with children – only 26% of whom have enough life cover to protect their family.

“We don’t like to think about death, particularly when we are young,” said consumer expert Martyn James.

“But bad things can and do happen – and if you want to make sure your family is cared for or your home is paid off, then life insurance is a must.”

Here’s everything you need to know about life cover – and if you really need it.

What is life insurance?

Life insurance is a policy you can buy that pays out either a lump sum or regular payments after you die to your dependents or other loved ones. 

You choose how much they get and if the money will be used to pay for certain things, like an outstanding mortgage, or just as a no-strings-attached inheritance.

You can also choose how long you want your policy to last based on what you need it for.

Rose St Louis, protection director at Scottish Widows, explained: “Some life insurance policies last for ‘whole of life’, meaning your entire life, while others only last a fixed period.

“For example, you can get decreasing cover, which helps pay off a repayment mortgage – so as your mortgage decreases, your cover decreases.”

You have to pay a regular premium for life insurance – usually annually, quarterly or monthly.

Who needs life insurance?

If you have a family, a mortgage, or any other financial commitments, life insurance ensures that your loved ones are financially protected in the event of your death. 

“Life insurance is crucial for anyone who has financial dependents,” said Justin Harper, from independent life insurance broker LifeSearch.

“It’s also essential for business owners to secure their business’s future, transfer of ownership and provide for employees,” he added.

Do single people with no kids need life insurance?

“Yes! While it might seem unnecessary, single people with no kids can still benefit from life insurance,” said Mr Harper.

For example, if you have debts, such as a mortgage or loans you took out jointly with someone, a life insurance payout can prevent these from becoming a burden to them.

Or, you may own a property that you want to leave to someone – life insurance could cover the cost of your mortgage, making that possible. 

It can also cover funeral expenses or provide a legacy for anyone you choose.

Can I get life insurance if I have health problems?

Insurers will cover most pre-existing health conditions, but it depends on how serious your health condition is and the outcome of your medical assessment, according to Paula Llewellyn, chief customer and strategy officer at Legal & General Retail.

“When you apply for life insurance, you’ll need to answer all the medical questions you’re asked,” she explained.

“This helps us decide your premiums (what you pay each month) and whether you’re entitled to life insurance.”

Examples of pre-existing medical conditions you need to tell insurers about include diabetes, heart conditions and kidney illnesses.

You would also need to declare a pre-existing medical event, such as a heart attack. 

This is important, because if you don’t declare something, your insurer may not pay out.

“If you’re ever unsure about anything, it’s always best to speak to the insurer and ask any questions you may have,” Ms Llewellyn said.

How much does life insurance cost?

The cost of life insurance varies based on several factors, including your age, health, lifestyle, and the amount you want it to payout.

Policies can be tailored to fit different budgets and needs.

An independent advice expert, like Lifesearch, can help you compare quotes, explain the differences and find and set up the most suitable and best value cover for you.

As an example, though, for a 35-year old non-smoker in good health buying a fixed £200,000 life insurance cover policy over 27 years, in 2023 Lifesearch customers would have been quoted around £12.07 per month – with the cheapest quote sitting at £9.74 per month.

How much life insurance cover do I need?

The level of cover you need to buy depends on your financial circumstances.

But a good starting point is looking at your financial commitments.

Do a quick add up of your mortgages, bills, outstanding debts, and then “think about the financial help your dependents might need if you weren’t there to support them”, says L&G’s Llewellyn.

This might be £100,000, £250,000 or a million pounds.

It’s always a bit safer to go a little higher than too low, especially if there is not much difference in the monthly premium.

I’ve heard about writing life insurance “in trust” – what is that?

Writing life insurance in trust involves legally placing the policy in a trust, ensuring the payout goes directly to who you choose. 

This has several benefits. First, it means no inheritance tax is due on the payout.

It also speeds up the payout process, and also ensures the money is handled exactly as the policyholder wishes. 

For example, take couples who live together and have children from former relationships. 

“In the eyes of the law, a couple that shares a home (no matter how long for) do not have the same rights as a married couple,” Ms Llewellyn said.

“Even if the life insurance policy is for the remaining partner to still afford the property, the children are legally due the payout.”

How to find the best and chdeapest life insurance?

Finding the best and most affordable cover requires comparing policies from different insurers. 

There are several ways to go about this. Try checking prices directly with an insurer, as well as searching on a comparison website.

Or, if you’re unsure what you want or need, ask an independent protection adviser to sort it out for you.

Bear in mind you will have to pay a fee for this advice, but it could save you a lot of money long-term.

But remember – “as with most things, cheapest isn’t always the best value, or right for you,” said Lifesearch’s Mr Harper.

But wait – will my insurer actually pay out if I need it?

Yes, in the vast majority of cases. Despite common misconceptions, according to the latest figures from the Association of British Insurers, claims payouts for life insurance have remained constant since 2017 at around 98%. 

And, says Lifesearch’s Mr Harper, when it comes to declined claims, in more than half of these occurrences customers had actually failed to mention to their insurer key details about themselves or their circumstances when they took out the policy.

“Working with an experienced adviser at the point of taking out insurance can help to reduce the chance of situations like missing information occurring,” he said.

“Not only can they help you navigate the questions, and difficult medical jargon, but also give you a better understanding of the full extent of your policy.”

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