Questions to ask yourself about life insurance
Most insurance is designed to protect you from financial loss like theft, accidental damage or even a large vet’s bill, but life insurance is different. It’s designed to protect the people who depend on you financially if you were to die and couldn’t support them any more. If you’re considering taking out life insurance to protect your nearest and dearest, here are a few questions to ask yourself before making any decisions.
1. Do I need life insurance?
If another person depends on you financially in some way, for example, school age children or a partner who relies on your income, then the answer is probably yes.
And don’t underestimate the importance of life insurance for a stay at home mum or dad. Think about all the duties you currently provide that would need to be funded somehow if you were no longer around. You can see just how much your efforts add up to using our ‘mum’ salary calculator.
2. What type of life insurance is right for me?
There are a few types of life insurance to choose from and which is right for you will depend on your personal situation and your intentions.
Simply speaking, there are two main categories of cover:
This is a life insurance policy that pays out if you die during a set period of time, usually from 5 to 40 years. No money will be paid out if you die outside of the term. Term insurance can be broken down further into level, decreasing and family income benefit:
- Level term insurance The premium stays the same and the amount paid out also remains unchanged. People often take level term insurance if they have people that depend on them financially — like a partner or children
- Decreasing term insurance Usually taken out to cover the outstanding amount on a repayment mortgage. The amount paid out when you die is relative to the balance of your mortgage. So, as the balance on your mortgage decreases, so does the amount the policy will pay out. Premiums stay the same throughout the term
- Family income benefit Family income benefit pays out a regular, monthly cash sum to your family should the worst happen. This is to help cover the household bills and other payments until the end of the term
Whole of life insurance
This type of life insurance policy has no time limit and will pay out no matter when you die.
3. How long do I need cover for?
This depends on your personal situation and why you need the policy. For example, you may want your policy to last until the mortgage is paid off or your children are old enough to take care of themselves.
4. Do I need life insurance if I’m already covered through my work?
If you already have life insurance with your employer, known as death in service benefit, you may not need another policy as long as you stay in the same job. However, it’s worth checking whether it provides enough cover to meet all the financial needs of your family if you weren’t around.
Your employer also has the right to review the level of cover they provide you with and as death in service benefits cannot be assigned to a certain person (and Trustees may use their discretion in payments), your dependants may not get the proceeds that you had originally thought. An additional life insurance policy could be a useful way to make up any shortfall.
5. How much life insurance do I need?
This is an important question that only you can answer because everyone’s situation is different. Start by thinking about how long you want your policy to last and what you want it to cover.
Work out how much money comes in each month and how much goes out. Look at your bank statements and savings and don’t forget small but important outgoings like the kid’s clubs and classes. Use our life insurance calculator to help you.
Also think about how losing you would impact childcare and other domestic duties. Whatever your role in the household, there are likely to be financial implications if you were no longer around to contribute.
6. How much can I afford to pay?
Very simply, the more cash you want to be paid out, the higher the premiums will be.
It’s natural to want to leave all you can for loved ones, but how much money you provide needs to be balanced against what you can comfortably afford to pay for the cover. Premiums must be paid each month throughout the lifetime of the policy and the most likely outcome if you were to stop paying, is that your cover would be cancelled and you wouldn’t get any money back, so be realistic.
7. What can I do to lower the cost of life insurance?
The cost of life insurance is based on risk. The more risky the insurer considers you to be, the more you’ll pay.
If you decide to take out life insurance, do so sooner rather than later if possible. The younger and healthier you are, the more cover you’ll get for your money.
Finally, think carefully about how much life insurance you actually need and how long for. Remember to take savings and investments into account as they could help reduce the payout you’ll need.
8. What if I became seriously ill?
Life insurance pays out if you die, but not if you’re diagnosed with a serious illness. If you’re concerned about the possible impact of this on your family’s finances you could consider adding critical illness cover as an extra benefit on a term life insurance policy.
For example, SunLife’s critical illness cover could pay out 25% of your life cover if you’re diagnosed with a serious medical condition, as defined by the policy.
Most critical illness insurance covers conditions such as heart attack, stroke and certain types of advanced cancer, provided they meet the specific criteria set out in the policy terms and conditions. For example, a heart attack could depend how severe it was and a stroke may only be covered if it results in permanent, debilitating symptoms. Always check exactly what’s covered and look for further details that might affect your right to claim, such as how serious the diagnosis needs to be. Never assume two products are the same.
To get an idea of how much a term life insurance policy might cost you with or without critical illness cover, why not get a quote today? Protecting your family could be more affordable than you think.
SunLife offers a range of straightforward and affordable products including over 50s life insurance, funeral plans, life insurance, pet insurance, car insurance, home insurance, ISAs and Will writing services.