Life Insurance

Because life is precious and often unpredictable.

What is Life Insurance?

Life insurance is a financial product designed to provide a tax-free lump sum payout to designated beneficiaries upon the death of the insured individual.

It is essentially a contract between one or two individuals (the policyholders) and an insurance company. The policyholders agree to pay regular monthly premiums for a specified term. In return, the insurance company commits to paying a predetermined sum (the sum assured) to the designated beneficiaries upon the death of the insured person.

Who is Life Insurance Designed For?

Life insurance is designed for anyone with financial dependents or those who want to ensure their loved ones are financially protected in the event of their death.

Here are some specific groups that might particularly benefit from life insurance:

Parents with Young Children: To secure their children's future needs, such as education and daily living expenses.

Spouses/Partners: To help the surviving partner maintain their standard of living, pay off debts, or cover daily expenses.

Homeowners with Mortgages: To cover mortgage payments, allowing surviving family members to remain in their home.

Individuals with Debts: To prevent debts from becoming a burden on family members.

Business Owners: To protect their business and ensure it continues operating or can be properly transferred upon their death.

People with Aging Parents: To provide for the care of elderly parents who may rely on them financially.

High-Net-Worth Individuals: To manage estate taxes and ensure a smooth transfer of assets to heirs.

Stay-at-Home Parents: To cover the value of services they provide, such as childcare and household management, in their absence.

Even individuals without dependents may consider life insurance for several reasons, such as:

Leaving a Charitable Legacy: To make a significant contribution to a charity or cause they care about after their passing.

Covering Final Expenses: To ensure that funeral and other end-of-life costs are taken care of, relieving any financial burden on family or friends.

Providing Financial Support: To offer financial assistance to someone who would be affected by their loss, such as a close friend or a relative.

What Are the Various Types of Policies Available?

There are several types of life insurance policies available, each designed to meet different needs and circumstances:

Term Life Insurance: Term Life Insurance provides coverage for a specific period, such as 10, 20, or 30 years, or up to a certain age. If the insured person passes away within this term, the beneficiaries receive the death benefit (sum assured). However, if the term expires and the insured is still alive, the policy typically ends with no payout.

Single Life Insurance: A Single Life Insurance policy covers one individual only. It pays out the chosen amount if that person dies during the policy term. If a couple holds two separate single policies, and one partner passes away, the surviving partner retains their own policy.

Joint Life Insurance: A Joint Life Insurance policy covers two individuals. It operates on a 'first death' basis, meaning the chosen amount of cover is paid out upon the death of the first insured person during the policy term. After this payout, the policy ends, leaving the surviving partner without coverage under that policy.

Whole of Life: Whole of Life Insurance is a type of permanent life insurance that provides coverage for the insured's entire lifetime, as long as premiums are paid. This policy guarantees a payout upon death, regardless of when it occurs.

Choosing the Right Type of Cover.

Once you've decided on the type of policy, its term, and the sum assured, you still have more choices to make. What best fits your needs: level, increasing, or decreasing cover?

Level Cover: Level term life insurance keeps both your premiums and your cover (sum assured) the same throughout the policy term, unless you make changes to the policy. This means that whether the insured person passes away on the first day of the policy or just before it ends, the payout remains constant.

However, it’s important to note that while the payout amount is fixed, it won’t increase with inflation, so its value may not keep pace with rising living costs over time.

Increasing or Indexed Cover: Increasing term life insurance adjusts the cover amount as the cost of living rises. This is typically reviewed annually, with the payout amount aligning with the Retail Price Index (RPI), a common measure of inflation. As the cover increases, your premiums will also rise, generally at a predetermined rate set by the insurance provider.

Policyholders can reject proposed premium increases, but this option may only be available a limited number of times before the policy reverts to a level-term life insurance policy.

Decreasing Cover: Decreasing term life insurance, often referred to as 'mortgage' life insurance, is commonly used to pay off a mortgage. Many individuals take out this policy when buying a property, ensuring that their loved ones aren’t left with a significant debt if something happens to them.

In this case, the payout reduces over time as the mortgage balance decreases. However, similar to level term insurance, your monthly premiums remain the same throughout the term.

How Much Does Life Insurance Cost?

The simplest answer to the question of how much life insurance costs is: "It varies". There isn't a fixed price for life insurance; the cost depends on the product you choose and the options you select.

Importantly, you play a significant role in determining your monthly premiums. Factors such as your age, health, lifestyle, and coverage amount all influence the cost. Each individual's circumstances are unique, which is why premiums can differ so widely.

Age: Generally, younger individuals pay lower premiums since they are considered lower risk. As you age, premiums typically increase.

Health Status: Your health plays a crucial role in determining your premiums. Those with pre-existing medical conditions or a history of serious health issues may face higher costs.

Lifestyle Choices: Factors such as smoking, alcohol consumption, and risky hobbies can impact your premiums. Smokers, for instance, usually pay significantly more than non-smokers.

Coverage Amount: The higher the sum assured (the amount paid out upon death), the higher the premiums. It’s essential to choose a coverage amount that reflects your financial responsibilities.

Policy Type: Different types of policies (term, whole, or decreasing cover) come with varying costs. For example, term life insurance is generally more affordable than whole of life insurance due to its temporary nature.

Duration of Coverage: Longer-term policies typically have higher premiums than shorter-term policies because the insurer assumes more risk.

Gender: Statistically, women tend to live longer than men, so they may pay lower premiums for the same level of cover.

Occupation: Some jobs are considered higher risk than others, which can affect premiums. Those in high-risk occupations may face higher costs.

To conclude, it is essential to compare quotes from multiple insurers to find the best coverage for your needs and budget. Consulting with an insurance adviser can also help you navigate your options and understand the costs involved.