Why do you need life insurance?

None of us likes to think about our own death and that’s probably the reason why so few people actually have a life insurance policy.

Another reason could be that it’s the one insurance policy you won’t benefit from personally.

The truth is that if you have no dependants and no outstanding mortgage that requires you do so then you don’t actually need a policy because it is only intended to benefit those you leave behind you.

But there are many other circumstances under which you might consider one to be beneficial.

Children

For example – if you are in a relationship or have children you might need to consider what would happen if you were to pass away unexpectedly.

The latest estimate for the cost of raising a child to the age of 21, even without private schooling, is £200,000 per child.

Debt

If you add to that any debt you may be carrying, the contribution your salary makes to the upkeep of your family and the cost of your funeral (average price now more than £4,000), you begin to get an idea of the sort of sum you should be insuring yourself for to ensure your family doesn’t suffer financially from your passing.

Then you need to decide ow much money you can afford to spend each month on a policy to protect all those things.

What type of policy?

There are several types of life insurance, each with a specific purpose in mind.

The two main ones are level term and decreasing term. With level term your premiums remain the same throughout the life of the policy and will pay an agreed lump sum on your death.

With a decreasing term policy, the monthly premium and the amount payable on death both reduce with time. This sort of policy is ideal for ensuring your mortgage would be paid off if anything happened to you, reducing down at the same rate as your outstanding loan.

Joint life

If you have a partner you might consider a joint life policy which would pay out on the first death. The payout would be made to the survivor, but they would then be left without life insurance.

One difficulty with such policies is that if the relationship breaks down it can be difficult to transform joint cover into single cover.

Over 50s

This type of policy is specially designed for those later in life and could simply be enough to cover your funeral expenses though you could opt for a larger lump sum payout to leave your dependants a small nest egg.

Also called ‘whole of life’, such policies pay out the agreed lump sum at whatever age you die. However, if you live to a ripe old age you might well pay more in premiums than your dependants will you receive once you pass away.

“There are several types of life insurance, each with a specific purpose in mind.”