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The Definitive Life Insurance Guide

Money Savings Advice Life Insurance definitive guide

This guide to life insurance expands on how an insurance policy works, different types of policies available and how you can shape a life insurance policy around your life. In simple terms, a life insurance policy is an agreement whereby an insurance company will payout to a designated beneficiary on the death of an insured person.

Amongst all insurance policies available, life insurance is one of the most difficult to discuss because ultimately, it involves financial protection for those left behind after the death of a loved one.

When you consider many households will have mortgage debt, credit card debt, personal loans, and other finance, lump-sum payment upon debt could help avoid serious financial trouble.

Read on and get all the details to see if Life Insurance is right for you.

Looking for other information on Life Insurance Policies? This guide has info on ‘The Ultimate Life insurance guide’ We have also writen extensively about:

We update all our guides regularly. If you are researching Life Insurance Policies and we haven’t got an exact guide that helps you, keep coming back as we update daily.


Do I Need Life Insurance?

Life insurance offers financial support to those left behind in the aftermath of your untimely death. Yes, this is not the easiest subject to bring up, and for some, it can be upsetting.

However, the potential for survivors to be left with huge debts and a huge hole in household income needs to be addressed. In exchange for regular premiums, there are various kinds of life insurance policies available which can ensure that your loved ones are provided for after your death.

When Do Life Insurance Policies Pay Out?

Under normal circumstances, life insurance payments will be released relatively quickly in the event of the death of the individual named on the policy. The immediate aftermath of the death of a loved one is traumatic in itself without additional financial pressures.

There are certain formalities to go through, such as confirmation of death, death certificate, but once the paperwork has been completed, the process should be relatively quick.


There are 14.4m people in the UK with a life insurance policy.

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Where Is the Life Insurance Payment Sent To?

The life insurance industry is relatively flexible, with an array of different policies available to suit different scenarios. For example, lump-sum payment on death may be paid directly to the named beneficiary or directly to a mortgage company to pay off any outstanding debts.

Normally, the lump-sum payment would be sent directly to the beneficiary at which point they can choose what, if any, debts to repay.

What Are the Different Types of Life Insurance Policy?

There are numerous types of life insurance policies including whole of life cover, term insurance, decreasing term insurance, increasing term insurance, renewable term insurance, joint life insurance and death in service benefits to name but a few.

It is fair to say choosing the right policy for your situation can be challenging; therefore, you should consider taking professional advice.


The Leading Life Insurance Companies Ranked According to Their Gross Written Premiums

This statistic presents the leading life insurance companies ranked according to their gross written premiums on the United Kingdom (UK) in 2016. It can be seen that Prudential ranked highest with approximately 13.5 billion U.S. dollars (USD) in written premiums in 2016, followed by Legal & General with 11.63 billion USD in that year


What Is Whole of Life Cover?

Whole of life cover is what you would expect; it guarantees payment to the named beneficiary no matter when you die. There are other types of life insurance policy which only pay out on death during a certain period. As a whole of life insurance has no fixed term, the premiums will be more expensive.

What Is Term Insurance?

Term insurance is a type of life insurance policy which can be shaped around, for example, your mortgage term. Let us assume that you had 20 years to go on your interest-only mortgage; you could take out a 20-year life insurance policy which would cover the repayment of capital in the event of your death.

Limiting the length of the life insurance policy in this manner (as opposed to a whole of life policy) will reduce your premiums.



What Is Decreasing Term Insurance?

If we assume that you have a capital repayment mortgage with 20 years to go, the mortgage liability will reduce as interest and capital is repaid month by month. Therefore, in this instance, it makes sense to look at decreasing term insurance where payment on death would follow the downward path of your mortgage liability.

As the life insurance payout would reduce the length, you live this gives scope for reduced premiums compared to traditional term insurance.

What Is an Increasing Term Insurance?

On the flip side of the coin, increasing term insurance is a life insurance policy where the payment on death is increased year on year. It is common to link this increase to the RPI index/inflation, thereby ensuring that beneficiaries are provided with sustained relative buying power going forward.

What Is Renewable Term Insurance?

As the term suggests, renewable term insurance is a form of term insurance where the policy can be renewed for a predetermined period of time upon initial expiry. One other benefit is the fact that you can extend the original term insurance without the need for a medical.

There may be a standard increase in premiums reflective of your age at the time but no additional medical checks.

What Is Joint Life Insurance?

Joint life insurance is a popular form of life insurance whereby two individuals are named on the policy, but only one payment will be made. Irrespective of which party dies, life insurance will be paid out on the death of the first person then the policy will end. This ensures a degree of financial assistance for the surviving party.


Total Household Spending on Life Insurances in the United UK From 2000 to 2019

This statistic shows the total household spending on life insurances in the United UK from 2000 to 2019. Over the time period the total amount of household expenditure spent on life insurance fluctuated, amounting to over 12 billion British pounds in 2019.


Death in Service Benefits

Death in service benefits allows companies to make a lump-sum payment upon the death of one of their employees. This payment is usually made to the individual’s family, and it is worth noting that death does not need to occur in the workplace or while on business duties.

Traditionally death in service benefits tends to be between three and four times annual salary.

Do I Need a Medical to Take Out Life Insurance?

Whether or not you require a medical before taking out life insurance will depend upon the provider, but there are certain medical conditions not covered. These include sexually transmitted diseases, drug abuse, self-inflicted injuries or death as a consequence of participating in hazardous activities.

There are life insurance companies that will cover some of these exceptions, but premiums would be much higher than normal.

Do I Need to Take Financial Advice About Life Insurance?

There are some different types of life insurance available today that many people find it very useful to take financial advice. When looking at life insurance in a perfect world, you should also consider your overall financial situation.

For example, if you and your partner have a large mortgage on your home, then it would make sense to take out life insurance in the event that you were to have an accident/develop an illness and pass away. As with any insurance, many people automatically assume that it is “wasted money” when in reality, it can provide a very important safety net for those left behind.

How Do I Decide the Length of My Life Insurance Term?

The length of your life insurance term will depend upon a number of factors but predominantly why you are taking out life insurance. For example, many people take out life insurance as a means of protecting their partner/family in the event that something happened and they were left with a significant mortgage they would struggle to afford.

You may have young children, maybe dependent on one income and also have various other debts to consider, such as credit cards, loans, etc. So, if you are taking out life insurance simply to cover your mortgage, then the duration of your life insurance policy should mirror that of your mortgage.


Leading Life Insurance, Pensions and Wealth Management Providers by Average Buzz Score

This statistic ranks leading life insurance, pensions and wealth management providers by average Buzz score in the United Kingdom from January to December 2019. Post Office ranked highest with a score of 4.1, followed by Liverpool Victoria and Direct Line.


Can Older People buy Life Insurance?

Yes. There is a general misconception that people over 50 will struggle to obtain life insurance when this is not necessarily the case. The over 50s life insurance market is extremely competitive and very active in the UK.

While your insurer would obviously indeed to take into account any pre-existing medical conditions, there are many policies available without a medical. You would simply fill out a form online and sign up for your policy there and then. The UK insurance market is huge, and as a consequence, you will find many companies focusing on different areas such as life insurance for the over 50s.

Can I Insure My Partner?

Yes. You would obviously need to have the consent of the individual, but there is nothing stopping you taking out life insurance for your partner. This is often referred to as an “insurable interest” which means that your finances could be impacted by the death of the individual.

As we touched on above, their death could lead to an unaffordable mortgage, large loan repayments or credit card debts. Under UK law, with a joint debt, each individual is liable for the full debt as opposed to their share of any debt. Therefore, upon the death of one person, the other one automatically becomes liable for any outstanding debts.


Money Savings Advice Tip

Life insurance is growing in popularity. Here at Money Savings Advice we recommend getting a whole market quote so you can see the monthly costs involved from all providers enabling you to make an informed decision.


How Can I Reduce the Cost of My Life Insurance Premiums?

The cost of your life insurance premiums is directly linked to your age and any underlying health conditions. For example, when comparing like for like health, someone in their 20s would pay a much lower life insurance premium than someone in their 50s.

So, if you are looking to take out life insurance, it would be useful to improve your health by maybe reducing your weight or giving up smoking. The healthier you are, the lower your premiums it is basically down to the risk/reward ratio from an insurer’s point of view.

Summary

The world of life insurance can sometimes be complex due to the different types of policies available and the opportunity to sculpture cover around a particular scenario. It is also a relatively difficult subject to bring up with a loved one, but it is something that cannot be ignored.

As a consequence, it may prove useful to seek professional advice where an adviser would look at your situation and potential life insurance cover requirements from a business perspective – as opposed to an emotional one.

Quick Life Insurance FAQs


Joint life insurance is a popular form of life insurance whereby two individuals are named on the policy, but only one payment will be made. Irrespective of which party dies, life insurance will be paid out on the death of the first person then the policy will end. This ensures a degree of financial assistance for the surviving party.

If we assume that you have a capital repayment mortgage with 20 years to go, the mortgage liability will reduce as interest and capital is repaid month by month. Therefore, in this instance, it makes sense to look at decreasing term insurance where payment on death would follow the downward path of your mortgage liability.

As the life insurance payout would reduce the length, you live this gives scope for reduced premiums compared to traditional term insurance.

Term insurance is a type of life insurance policy which can be shaped around, for example, your mortgage term. Let us assume that you had 20 years to go on your interest-only mortgage; you could take out a 20-year life insurance policy which would cover the repayment of capital in the event of your death.

Limiting the length of the life insurance policy in this manner (as opposed to a whole of life policy) will reduce your premiums.

Whole of life cover is what you would expect; it guarantees payment to the named beneficiary no matter when you die. There are other types of life insurance policy which only pay out on death during a certain period. As a whole of life insurance has no fixed term, the premiums will be more expensive.

Under normal circumstances, life insurance payments will be released relatively quickly in the event of the death of the individual named on the policy. The immediate aftermath of the death of a loved one is traumatic in itself without additional financial pressures.

There are certain formalities to go through, such as confirmation of death, death certificate, but once the paperwork has been completed, the process should be relatively quick.

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How Can Money Savings Advice Help You With Life Insurance?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Life Insurance brokers. They have already helped thousands of people get the best Life Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Mark Benson

Mark has been writing professionally for over ten years for the financial sector. Having started in the financial world as a stock-broker in central London and then moving to equities trader Mark is one of our senior financial writers who has a vast knowledge of multiple financial sectors.

Mark Benson

Mark has been writing professionally for over ten years for the financial sector. Having started in the financial world as a stock-broker in central London and then moving to equities trader Mark is one of our senior financial writers who has a vast knowledge of multiple financial sectors.

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