Do I Need Life Insurance?

Life insurance, also known as life assurance, is a policy where, in exchange for an agreed monthly payment, the insurer provides a lump sum if you pass away or are diagnosed with 12 months or less to live.

If you’re the primary breadwinner or share financial responsibilities, a life insurance policy can help your family maintain their standard of living in the unfortunate event that you’re no longer around to support them.

Do You Need Life Insurance?

Life insurance is not a one-size-fits-all product, but certain groups of people may benefit from having a policy in place:

Parents

If you have children, a life insurance policy will pay out a lump sum to your spouse or children. This will ensure that they are financially protected if something happens to you. 

• Whole of Life Policies: Whole of life insurance guarantees a payout whenever you pass away, as long as the premiums are paid. This is a good choice for parents looking for lifelong financial security for their dependents, ensuring funds are available for things like inheritance planning or ongoing support.
• Level Term Policies: Level term insurance provides cover for a set term (e.g. 10 to 40 years) and pays out a fixed lump sum if you pass away within this period. This type of policy is popular with parents who want protection until their children are financially independent.

Homeowners

If you have a mortgage, life insurance can help cover the remaining balance. With fluctuating mortgage rates, this could make a significant difference in whether your loved ones are able to keep the family home or face the financial pressure of mortgage costs.

• Level Term Policies: A level term policy is ideal for homeowners, renters or anyone with financial obligations, as the payout remains consistent over the term. This can help loved ones maintain their standard of living in the event of your death.
• Income Protection: While not a direct form of life insurance, income protection insurance replaces a portion of your income if you’re unable to work due to illness or injury. For homeowners, this can help keep up with mortgage payments and other living expenses during challenging times.

Business Owners

Some business owners take out life insurance to protect their business partners. This can help cover the cost of recruiting, training or the loss of key partnerships due to the death of a partner. 

• Keyperson Insurance: This type of policy is designed to protect a business from financial losses that may result from the death of a key individual. The payout can be used to cover recruitment and training costs or to sustain the business during a transitional period.
• Relevant Life Insurance: Relevant life insurance is a tax-efficient policy for small business owners. It provides a death-in-service benefit to employees (or directors), allowing premiums to be paid by the company rather than personally while still offering protection to loved ones.

Individuals with Dependents

Whether it’s a spouse or ageing parents, life insurance provides a payout that can help your dependents maintain their standard of living after you’re gone.

• Income Protection: If you become unable to work due to illness or injury, income protection ensures you can still contribute financially to your household. This is particularly vital if you are the primary breadwinner for your dependents.
• Critical Illness Cover: Critical illness cover provides a lump sum payout if you’re diagnosed with a specified serious illness, such as cancer or heart disease. This can help with medical expenses, adaptations to your home, or additional care costs, ensuring your dependents aren’t burdened by unexpected expenses.

Real-Life Example: How Life Insurance Payouts Work

David is a 39-year-old father of two and has a 25-year level life insurance policy worth £400,000. He pays £23.83 a month in premiums. Unfortunately, David passes away unexpectedly when his children are still young. Thanks to his life insurance policy, his wife receives a £400,000 lump sum, which she uses to pay off their mortgage and set aside money for their children’s future education. 

Without this policy, the family would have struggled to make the mortgage payments as well as pay the bills. This could have resulted in the family having to move out of the family home. 

David’s life insurance policy: 

• Sum assured: £400,000
• Term: 25 years
• Premium: £23.83

Sarah and her husband, James, took out a life insurance policy after welcoming their first child for the sum assured of £239,625 after welcoming their first child. Tragically, James passed away suddenly three years later. Thanks to his policy, Sarah received a lump sum that covered their mortgage and provided financial stability during an incredibly difficult time.

James Life Insurance Policy: 

• Sum assured: £239,625 
• Term: 28 years
• Premium: £8.62 per month

How Much Life Insurance Do I Need?

For more information on life insurance and the different policies available, contact The Insurance Surgery today to get a quote or to discuss your protection needs further.