Life Insurance

Life insurance provides financial protection to your dependents by paying a lump sum if you die within the term of the policy. When you take out life insurance, you’ll need to decide how much cover you need and who the payout will go to.

How life insurance works

Life insurance is a financial product that is paid in the form of a monthly premium and lets you leave money behind when you die.

A life insurance policy acts as a contract between you and the provider. The insurer agrees to pay out a sum of money in the event of your death in exchange for a monthly premium.

You might take out a life insurance policy to leave an inheritance when you die or to cover funeral costs. People will often take out a life insurance policy to coincide with an important life event such as buying a new home or having a child. This is so that costs are covered in the event of your death.

A life insurance policy can be combined with other products such as critical illness insurance but remains the main product for ensuring your family’s financial security.

Life insurance can be written into a trust to allow greater control over the policy. This also provides tax advantages and can help protect any money left behind from inheritance tax.

Speak to your IFA for more information about life insurance and combining them with other products.

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What life insurance covers

Life insurance covers death but there are exceptions.

If your death is caused by something that is not covered by the policy then no payment will be made. A common example is death caused by drug or alcohol abuse which would not be covered. It’s important to read the policy carefully so that you know what is covered and what is not.

Life insurance cover and the premiums associated with the policy are calculated on information you provide. If you have a dangerous job or you do dangerous sports, you are likely to pay higher premiums.

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What life insurance do I need?

This comes down to your personal circumstances and the amount of cover you want in the event of your death.

It’s best to work out how much you would like to be paid out in the event of your death to get the right amount of cover. The higher the payout, the higher the monthly premiums will be.

The next thing to consider is the type of life insurance that best suits you. There are a number of life insurance products available but for the most part, the market can be broken down into two main products.

  • Whole-of-life cover
  • This type of policy will pay out regardless of when you die and usually has higher monthly premiums.

  • Term-life cover
  • A term-life policy will run for a fixed term that you specify when you take out the policy. Should you die during that term then a payout will be made. This type of policy usually has lower monthly premiums than whole-of-life cover.

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Is life insurance a good investment?

Life insurance is a good investment for those with young children or other dependents as it can ensure financial support in the event of your death.

It may not be for everyone. A life insurance payout goes to loved ones when you die. If you are single with no dependents and you do not plan on passing anything on, life insurance may not be necessary.

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