Is life insurance worth it UK? Life insurance provides financial support to your loved ones if you die during the policy’s term. You may be wondering if you truly require it. However, planning ahead of time can provide your family with peace of mind if the worst happens.
A life insurance policy can provide your loved ones with a tax-free sum of money, alleviating the financial stress caused by any resulting loss of income. It could be one of the most significant financial investments you ever make.
This article takes a look at the benefits of putting life insurance in place while you are still alive.
Life insurance meaning
Life insurance is intended to provide you with the assurance that if you die, your loved ones will receive a lump sum. This is especially important if you are the primary or sole earner in your family, as your death may leave your family without enough money to live on.
When you purchase life insurance, you pay regular monthly or annual premiums in exchange for the insurance provider agreeing to pay out a cash sum if you die while the policy is active (as long as you meet all of its terms and conditions).
If you die during the policy term, your beneficiaries will typically receive a tax-free lump sum or monthly income. Whoever receives the money is free to spend it however they see fit.
However, payouts are typically used to pay off a mortgage or other debt, cover household bills, and cover general living expenses ranging from childcare to the weekly grocery shop.
Premiums (which are typically paid monthly to the insurer) are calculated based on factors such as your age, health, occupation, and the length of time you want the policy to last.
Why do you need life insurance?
If you have family members who rely on you financially, such as children or a partner, you should get life insurance.
Consider this: if I were to die, how would my family cope? Would I want them to be free of financial concerns during a time of bereavement and disruption?
If this is the case, you should think about getting life insurance. A life insurance payout can be used to pay off a mortgage, cover funeral expenses, fund childcare expenses, or cover general living expenses.
Life insurance payouts can be received as a cash lump sum by your dependents. It can also be received as regular payments, the amount of which depends on the type of policy you purchase.
To keep your policy valid, you must provide accurate information at the time of application and pay the monthly or annual premiums on time.
The cost of life insurance will depend on many factors, including:
- The type and length of policy you buy.
- The size of the payout you want.
- Your age.
- Current health condition.
- Whether you are a smoker.
Types of life insurance ( Is Life Insurance Worth It UK)
There are various types of life insurance. You should select the type that best meets your and those you want to financially protect’s needs. Here’s an overview.
- Term life insurance
- Whole-of-life cover
Term life insurance
This type of policy pays out if you die within the specified term, which is usually 10 or 20 years but can be changed when you buy. It is the most common (and least expensive) type of life insurance.
There are four types of policies under term life insurance.
- Decreasing term
- Level term
- Increasing term
- Family income benefit
Decreasing term
This policy is ideal if you anticipate that your financial obligations will decrease over time, as it is designed to pay out less as the term progresses. For example, decreasing term life insurance can be set up so that the payout corresponds to your mortgage balance as you pay it down.
Level term
This type of term insurance pays out a fixed amount regardless of how far into the term you are. As a result, it may be ideal for families with younger children or larger families. It also works well for those who have an interest-only mortgage with a fixed capital debt. Premiums for level term policies are higher than premiums for decreasing term policies because the payout is fixed.
Increasing term
Because the type of term policy takes into account potential increases in inflation (the cost of living), the payout increases by a fixed amount each year for the term. As a result, it is the most expensive type of term insurance available.
Family income benefit
Instead of a lump sum, a family income benefit policy pays out monthly from the time a claim is made until the term expires. Because the potential payout is lower than that of a lump sum policy, the premiums are lower.
If you outlive the stated term on any term policy, your coverage will end and you will need to purchase a new policy. If you live to the end of the term, there will be no refund of premiums.
Whole-of-life cover
Whole-of-life insurance, unlike term life insurance, will payout to your beneficiaries regardless of when you die. You will have to pay premiums until you die, or up to an age specified in the policy, say 80, in order to receive coverage until the end of your life.
Because whole-of-life insurance has a guaranteed payout, it is frequently used to fund funeral expenses or to offset an inheritance tax bill. On assets worth more than £325,000, inheritance tax is currently levied at 40%.
It’s important to note that life insurance payouts are counted for inheritance tax purposes, though you can avoid this by writing the policy in Trust. When you purchase your policy, your life insurer will explain this to you.
Premiums for whole-of-life insurance are higher than for term life insurance because it guarantees a payout. If you choose a whole-of-life policy linked to an investment fund, your premiums may even rise if the fund underperforms.
How does life insurance work?
On your death, life insurance pays out either a lump sum or regular payments, providing financial support to your dependents.
The amount of money paid out is determined by the level of coverage purchased.
You decide how it will be distributed and whether it will cover specific payments (such as a mortgage or rent) or leave an inheritance to your family.
Life Insurance UK cost (Is Life Insurance Worth It UK)
The price varies according to a number of factors. However, life insurance is generally thought to be a good buy. A policy that provides adequate financial protection for your loved ones can start as low as a few pence per day.
Your monthly payments will depend on things such as:
- Age
- your health
- your lifestyle
- whether you smoke
- your family medical history
- the length of the policy
- your occupation – a high-risk job might push your premiums up.
The following are the average costs of life insurance Uk per month by age bracket:
- Age 16-29: £19.67 per month
- 30-39: £28.35 per month
- 40-49: £36.43 per month
- 50-59: £36.81 per month
- 60+: £39.83 per month
Best way to buy life Insurance UK
Because premiums can vary, it’s worthwhile to shop around and compare different quotes.
You can get life insurance quotes from the following:
- banks
- specialist brokers
- comparison sites
- direct from insurers
- credit card companies
- independent financial advisers
- retailers, including major supermarkets
- mortgage providers – most offer life insurance automatically when you take out a mortgage, but you might be able to find a better deal elsewhere.
Is Life Insurance Worth It UK
Getting life insurance in the UK is dependent on a number of factors, the most important of which is whether you have anyone who financially depends on you. Along with children or stepchildren, this could include a spouse, partner, or even a parent.
Life insurance is especially important if you have a mortgage that must be paid even if your income suddenly disappears. However, there are other (rising) costs to consider, ranging from energy bills to council tax to childcare.
If you already have life insurance, certain life events such as marriage, having children, and purchasing a home may necessitate increasing your level of coverage.
While this may result in higher premiums, these should be balanced against the financial security that adequate coverage can provide.
While premiums will vary depending on a variety of factors such as the amount of coverage, the type of policy, your medical history, age, and occupation, it may be less expensive than you think in some cases.
For example, a quick search on our life insurance comparison tool reveals that £200,000 in level term cover for a single applicant aged 30 costs less than £10 per month.
It’s also worth noting that, as morbid as it may sound, most life insurance policies cover terminal illnesses with less than a year to live.
Conclusion of Is Life Insurance Worth It UK
People buy life insurance to ensure that their dependents will be taken care of if they are no longer able to provide financial support.
People who expect to pay inheritance tax (IHT) on their estate should also consider purchasing life insurance.
A policy will not only make it easier for heirs to pay the tax bill upon death, but the policy payout itself may be exempt from IHT if it is written into trust.
Is Life Insurance Worth It UK (FAQs)
Is it worth it to get a life insurance?
Yes, If you have family members who rely on you financially, such as children or a partner, you should get life insurance.
Is life insurance worth it at 25?
Even if you cannot afford a permanent life insurance policy, most 20-somethings can obtain very good term policies for very low costs
Why you should not buy life insurance?
Life insurance can be expensive if you’re unhealthy or old.
