The life insurance you should get varies depending on your circumstances and what you want to make provisions for in the event of your death. Getting life insurance can be simple and easy to arrange as long as you take the time to consider your needs carefully.
In this article, we explain why you need life insurance as this can help you work out what life insurance you should get. We also explain the different types of life insurance, how they work and how to choose the best life insurance policy to suit your needs.
If you would like to jump ahead, you can go straight to "How to get the right life insurance".
Why do I need life insurance?
Life insurance pays an amount of money to lessen the financial burden caused by your death and although people in different circumstances have different needs, we can usually categorise the most common reasons why you need life insurance into five main groups:
- Dependents - to replace your income for those who depend on it
- Debts - to repay any financial commitments such as mortgages, loans or other credit
- Inheritance tax - fund any inheritance tax due on your estate after you die
- Funeral costs - to fund the costs of arranging your funeral
- Business - to replace any lost revenue; fund hiring and training your replacement or fund the buyback of shares you owned
Although life insurance is not usually mandatory, most people buy life insurance to protect against the financial impact of their death. Life insurance policies range from general plans that can be used for multiple purposes to ones that are quite specific in their nature and only suit certain needs. We come on to this further in the article.
How does life insurance work?
In very general terms, life insurance pays out money if you die but the conditions for payment vary depending on the type of life insurance that you choose.
- Term life insurance - pays out if you die within the period of time that you choose to be covered (the term) and if you outlive the term then there is nothing payable. The key is that you've had peace of mind while you needed it.
- Whole life insurance - pays out when you die, regardless of when that happens and is more expensive than a term life insurance policy.
How does term life insurance work?
| Term life insurance policy type | How it works | Commonly used for |
| Level term life insurance |
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| Mortgage or Decreasing term life insurance |
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| Family income benefit |
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How does Whole life insurance work?
| Whole life insurance policy type | How it works | Commonly used for |
| Whole of life cover |
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| Over 50s life cover |
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| Funeral plan | Like Over 50s life cover but the sum insured is paid directly to the funeral arrangers upon death to pay for arrangements |
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You can read more about different types of life insurance and how they work in our article "Types of life insurance explained".
How much life insurance should I get?
The amount of life insurance that you need will depend on what the money needs to do if you die. Working backwards from this will assist you in choosing the right amount of life cover as well as the most suitable type of life insurance policy.
You can check how much life insurance you should get by following our article, "Check your personal insurance needs in 2 minutes".
How long should I take out life insurance?
You should take your life insurance out for as long as you have a need to provide money in the event of your death. Do bear in mind that most term life insurance policies can be cancelled early if you no longer need them but they are trickier to extend without reapplying for the cover which can be more expensive.
The most common reasons for life insurance can be matched to the number of years until:
- Your dependents become self-sufficient
- Your debts are repaid
Or, in the case of long-term needs that may continue until you die, you will need to choose a type of life insurance that will cover you until your death happens. It can be helpful to speak to a life insurance specialist* as there are many types of whole life insurance policies and you'll need to weigh up whether you can afford the cover beyond retirement, as payments usually continue for as long as you live.
Life insurance premiums are fixed for the duration of your cover unlike general insurance policies like home insurance, car insurance and even private medical insurance where the premiums are recalculated each year.
Ensuring your beneficiaries receive your full death benefit
There are three very good reasons to set up a formal agreement for how your death benefit is to be distributed:
- It ensures that the people you intended to benefit can receive the money from your life insurance directly
- It avoids the money becoming entangled within your estate and the delays caused by the probate process
- The death benefit will not add to your estate value for inheritance tax calculations
The formal agreement is written using a Trust which is a legal document that outlines who you wish to benefit, how the death benefit is to be split and who will oversee the distribution of the money. You can read more detail about Trusts in our article, "Writing your life insurance in trust – How it works and why you should consider it"
How to get the right life insurance
Life insurance can seem simple, but several considerations are involved in choosing the right life insurance at the best price for your specific needs. You can start by searching comparison sites which will give you an idea of the very basic life insurance policies that are available to buy as well as what sort of costs are involved. However, the price is only an indication and the actual price won't be known until you apply to the life insurance company.
Beyond your initial search, it is helpful to engage, free of charge, with a life insurance specialist* who will take the time to understand all of your needs, priorities and how much you wish to spend before searching the market for the best life insurance policy.
Your budget is an important factor in choosing the right life insurance as it is pointless putting in place life insurance that, in time, you find you can't afford and end up cancelling.
Insurance specialists are experts in their field and have access to a wide range of life insurance providers and life insurance products. Importantly, they understand how each insurer prices your particular health, occupation and lifestyle as these factors can affect how much you pay and what insurances you will be accepted for. Additionally, as a Money to the Masses reader, you'll also receive up to £100 cashback if you buy your life insurance via the link above.
