Everything you need to know before you take out life insurance
There are many reasons to begin looking for life insurance, however, knowing exactly where to start can be a headache. In this guide, we’ll be answering the most common questions asked by those taking out life insurance policies.
Here at I’m Insured, we want to help you to get the best deal and the most appropriate cover for your situation. Whether you want to help your partner pay off your mortgage in the event of your death, leave a legacy, assist with your funeral costs or provide for your children with the payout, it’s important to do your homework before you sign up for life insurance.
Life Insurance Explained
What is life insurance?
Life insurance is a policy taken out to cover and protect your loved ones financially in the event of your death.
The insurance company pays out a lump sum of money (or a regular payout) to the policy holder’s beneficiaries when they die. This provides financial support in the event of their death, helping with situations such as bills, debt, childcare costs or mortgage payments.
How does life insurance work?
Life insurance is a contract between a policyholder and an insurance company. The policyholder agrees to pay premiums while they are alive, to maintain the coverage. In the event of their death, the life insurance company can make a lump sum payout or instalment payments to the named beneficiaries on the policy.
When the policyholder dies, the beneficiaries need to file a death claim with the insurance company. This requires them to submit a copy of the death certificate as soon as possible. Once the insurance company has this, they will review the claim and make the payout once approved.
When do you need life insurance?
You can apply for life insurance at any time in your life, however, it’s common to take out a policy if you meet this criteria:
- You have dependants; especially children under 18 years of age
- You have a partner who relies on your income
- Your family and dependants live in a house with a mortgage that you pay for or contribute towards
- You want to cover your funeral expenses if you believe this will be a financial burden for your loved ones left behind
You can’t rely on the government to provide enough financial support, so life insurance is essential if you have family who rely on your earnings.
For example, if you don’t have life insurance as the sole earner - or even if two of you earn now, but one income wouldn’t be enough to cover expenses - those left behind may not be able to pay the mortgage, rent or other living expenses in the event of your death.
What does life insurance cover you for?
The specifics of what life insurance covers you for - and does not cover you for - is dependent on the specific policy you take out and the insurance provider.
In the event of your death, life insurance covers you for a range of things including:
- Your mortgage
- Loans and debts
- Income replacement
- Day-to-day expenses
- Childcare expenses
- Education expenses
- Funeral costs
If you suffer an illness or a disability, life insurance will not pay out. However, critical illness cover is a product that does cover this. Life insurance and critical illness cover is often combined by certain insurance providers.
How many life insurance policies can one person have?
There is no law that prevents you from having more than one life insurance policy, and you can claim on all valid life insurance policies. However, for most people’s circumstances and needs, one life insurance policy is usually enough to cover them.
Choosing Your Life Insurance Policy
How to choose life insurance
How to choose your life insurance policy depends on your personal circumstances and it’s different for everyone. However, usually, the more protection your policy offers, the more your premiums will cost.
You need to work out how much money is needed to financially protect your family and dependents in the event of your death. This sum needs to take into account their everyday living costs, the mortgage and any other debts.
If you want your mortgage to be covered, you can get cover for the amount needed to pay this off (as your mortgage debt shrinks, the life insurance payout will too).
If you want your pay out to provide your partner with a regular income, assess your current outgoings and consider any future costs that may occur.
For over 50s who want to cover funeral costs or leave inheritance, it’s best to make the cover amount decision based on how much you can afford for the premiums.
To make sure you have the correct amount of life insurance to cover all of your needs, we've designed an easy life insurance calculator to help give you peace of mind. Use our fast and free life insurance calculator to work out how much cover you might need before looking for quotes.
Once you have decided what you need your policy to cover, and for how much, you can choose a type of policy.
Most commonly, someone will take out life insurance for a specified period of time, for example, the length of a mortgage, or until an expected retirement age. Or some people will take out a life insurance policy that lasts their whole life. When selecting the policy that’s right for you, you can choose the length of the policy, and choose between decreasing term and level term cover.
What types of life insurance can I get?
Here are the main types of life insurance:
Level term insurance: Lasts for a pre-agreed length of time and will pay out a set lump sum in the event of the policy holder’s death during that time.
This type of life insurance policy is suitable to cover an interest-only mortgage, a fixed amount of debt, or a lump sum payout for children.
Decreasing term insurance: Lasts for a pre-agreed length of time, (usually the same term as the mortgage length), and pays out in the event of the policy holder’s death during that time.
This type of policy is aimed at people whose financial commitments decrease over time, most commonly, a mortgage. This is best for someone with dependents who need support with a mortgage repayment, but can cover other living expenses in the event of the policy holder’s death.
Family income benefit insurance: This is similar to both level and decreasing life insurance, however, rather than a lump sum pay out, it will pay out a regular income (often matching current or future salary earnings) to the beneficiaries for the remaining policy term.
This type of policy is ideal for someone with dependents or a partner who would suffer financially if the policy holder passed away, and will help to avoid the need to change their current lifestyle.
Whole-of-life insurance: This policy doesn’t last for a fixed amount of time, but covers someone for the rest of their life; beneficiaries will get a pay-out whenever they die.
This type of policy is best for someone looking to cover their funeral costs or inheritance planning.
Single vs Joint life insurance: You can hold any of the above policy types as a single or joint life insurance policy. Couples have a choice between having separate policies, or one joint policy that covers them both.
With a joint policy, the payout is automatically given to the other policy holder. This policy will only pay out once, most commonly, when the first partner passes away. This leaves the surviving partner without insurance for the rest of their life. A joint policy is generally cheaper than two single policies.
With a single life insurance policy, this covers just one person (but each person in the partnership can both have single policies), and the policyholder must choose who they want the payout to go to.
This differs from a joint policy, as if one person dies, the surviving partner still has their own life insurance cover. Each individual policy can cover different amounts, making it easier to tailor to specific needs.
Life insurance policies come in all shapes and sizes, so it’s important to select the option that not only suits your budget, but covers exactly what you need. To learn more about your life insurance options, read our comprehensive guide to the types of life insurance.
Applying for Life Insurance
How do I compare life insurance quotes?
To find out how much life insurance could cost you, start your free online quote - I'm Insured will compare insurance from the UK's most reputable providers in the market.
Our service is fast, free and secure. You’ll be able to compare life insurance deals to find the best price and the most suitable cover for you. Once you’ve chosen the right policy to fit your needs, simply click through to the insurance provider to complete your purchase.
We’d recommend not just choosing the cheapest option, it’s important to balance the cost and amount of cover to ensure you have the correct policy in place for you and your family.
What factors are considered in your life insurance application?
Alongside the amount of cover and length of cover, there are a number of factors that are also considered when your life insurance premiums are calculated, such as:
- Family medical history
- Smoker status
How do I apply for life insurance?
Applying for life insurance is straightforward and can all be done online.
Here at I’m Insured, we’re a free, independent insurance brokerage designed to find you the best quotes online and to reduce the cost of your monthly insurance premiums.
You can compare life insurance policies from the UK's most reputable providers, then apply and buy your life insurance in 4 easy steps.
All your information is secure, and we’ll ask you to simply answer a few questions:
- The type of insurance you would like
- Who you would like to cover
- How much you’d like to be covered for
- How long you’d like to be covered for
- Your contact details
- Some information about your health and lifestyle
2. We’ll then generate bespoke quotes. You can either choose an option from the list of quotes or speak to one of our advisors.
3. If you choose to select one of the life insurance quotes immediately, you’ll be given the policy documents to read.
4. If you’re happy with the policy details, you can now buy the life insurance policy.
Can you be refused life insurance?
Some of the main medical reasons that cause a life insurance application to be denied include:
- A recent medical diagnosis such as, a heart attack
- Treatment that is currently ongoing, including, chemotherapy
- Outstanding investigations and referrals
- Abnormal test results including high blood sugar, cholesterol, or blood pressure.
However, don’t worry – just because one insurance provider has refused your life insurance application, doesn’t mean you can’t get insured elsewhere.
Here are a few options to take if you are refused by an insurance provider:
- Some insurance companies have different terms and conditions for cover, so just because one specific provider won’t cover you, another may do, so try a range of insurance companies.
- Use a different insurance advisor who has the right expertise to find an appropriate company for your situation.
- You may have applied when your medical readings were uncharacteristically high, and treatment or a change in lifestyle may improve your condition so you can apply again.
- If smoking or your lifestyle was the reason you were declined, quitting smoking or making positive changes to your lifestyle mean you could try again and be approved.
- Underwriting policies are regularly updated. A provider who may not cover you now, could change their terms and could cover you in future, so keep checking.
Is life insurance worth it?
A life insurance policy is often not worth taking out for a person who does not earn and has no family or dependents who would suffer financially if they passed away.
However, if someone has dependent children or a partner, life insurance is a significant benefit, preventing their family from suffering with the financial impact of their death.
Life insurance helps to cover a mortgage, day-to-day living expenses so loved ones don’t need to change their standard of living, funeral and burial expenses, debts and generally makes finances less of a burden for those left behind.
Life insurance protects you and your loved ones financially. Use our simple online tool to compare UK life insurance quotes and find the best prices and cover for you. Start your online quote now.