Life can be unpredictable, and we never know what might happen. In the unfortunate event that you might pass on, will your family be able to pay your debt or look after themselves? Life cover allows your family to be financially secure when you are no longer around.
What is life cover?
Life cover or life insurance is a policy that gets taken out to protect and help your loved ones when you are no longer around to care for them, or to cover large debt such as a mortgage.
What is life cover for?
Life cover is so much more than a seemingly wasted monthly premium. Have you considered what the claim payout could cover?
- Your funeral expenses in any country abroad – You might not have a funeral plan, or your existing one might not cover death abroad.
- Repatriation costs if your spouse/partner is moving back to your home country – Moving back home could become expensive for your partner
- Helps pay off debt, such as mortgages, credit cards, or loans.
- Your children’s future education – This is a big one. Education costs for your children could extend into the hundreds of thousands. Will your spouse be able to pay for your children’s education if you are not around?
- Pays for children’s care if both parents pass on – Who will pay for your children’s care if both parents pass on? You might be fortunate enough to have family take them in, but who will pay for their future needs? A single parent might need an au pair to help with the kids.
- A monthly income for your loved ones/spouse to live comfortably and not worry financially, especially if they are stay-at-home parents/spouses/partners. Financial security is vital.
- It can provide retirement savings / financial security for your partner/spouse.
“You don’t buy life insurance because you are going to die, but because those you love are going to live.” - Unknown
What kinds of Life Cover are there?
- Whole life cover
This is life insurance that covers you for your whole life and will pay out a lump sum amount to your beneficiaries no matter when you die; for example, a policy of £200 000 life cover will pay out when you die.
- Term life cover
This life insurance is chosen for a particular term length and will pay out if you die within that period. If you don’t die during the selected term, it will not pay out to your beneficiaries, and your premiums are not refundable.
There are three kinds of Term Life cover.
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- Level term – This cover pays out a fixed lump-sum amount if you die within this term, e.g. you take out £100 000 life cover over 40 years. Whether you die in 1 year or 39 years, the money will pay out £100 000 to your beneficiaries.
- Increasing term – This life cover increases annually throughout the term of the policy to keep up with inflation so that your beneficiaries can make the most of the lump sum.
- Decreasing term – This insurance covers a large debt like a 30-year mortgage, e.g. in year 1, the debt is £300 000, and the cover is £300 000. By year 25, the remaining debt is £50 000, and cover will drop to £50 000. The cover decreases to match the outstanding debt. This means that premiums will also decrease over time.
- Critical / terminal illness or disability cover
This is insurance based on health conditions that may occur. This policy agrees to pay out a lump sum of cash if the policyholder becomes critically / terminally ill or disabled and unable to work anymore.
When should you review your life cover?
Circumstances change throughout your life, and your life cover needs to be amended accordingly. There are certain times in your life when you need to re-evaluate your life cover.
• Buying property – if you purchase a property, you need life insurance to cover the mortgage in the event of your death, so your family is not left with debt. If you have existing life cover, you might need to increase it to include the value of the mortgage.
• Getting Married – Now that you have a spouse, you might want to increase your life cover to provide for your partner and pay your debt. There is also the possibility of joint life cover, which could work out cheaper.
• Growing family – As your family grows, so should your life cover. Your original life insurance might cover your debt and your spouse’s. What about your children’s schooling, tertiary education, and monthly upkeep? Will your spouse be able to cover all these things? According to a study by moneysupermarket.com, raising a child could cost between £80 000- £100 000.
• Career change – As you progress in your career and earn more, you ultimately spend more. You may want to increase your life insurance to cover the new lifestyle that your family will become accustomed to. If you changed companies and had ‘death in service’ cover, which you no longer get with your new role, you may also need to adjust your cover.
• Retirement – When you retire, your needs change. Your children might not depend on you anymore, your mortgage could be paid off, and you might have downsized your lifestyle. You may not need as much cover anymore. If your partner or grandchildren depend on you financially, you may want to keep the cover the same.
Don’t wait till you are older to apply for life cover. Remember that life cover becomes more expensive the older you get, as you become a higher risk. Apply at a younger age when premiums are lower. Make sure to include Critical illness and disability in the quote.
Your financial advisor can find the right match for your insurance needs.