Whilst most people will have insurance for their homes, pets, holidays and smartphones, it’s surprising how few take out life insurance. This can be a very risky way to live and many financial experts recommend having a life insurance policy in place by the time you turn 35, if not earlier.
In this article we’re looking at the reasons to take out life insurance and how it will benefit your wider financial portfolio.
The different types of life insurance
Life insurance policies are usually taken out for an agreed period of time, which is called the “term”. This means that your beneficiaries receive a pay-out if you die within that term, although there will be no pay-out if you outlive it and your payments won’t be refunded.
The three main types of life insurance are:
- Level term: The pay-out is agreed at the start of the policy and remains the same size throughout the term.
- Decreasing term: The pay-out decreases in size over the course of the term. This is usually chosen by people concerned about large debts being left behind, such as a mortgage.
- Increasing term: The pay-out increases in size over the course of the term. The older you are when you die, the larger the lump sum your family will receive. This is often chosen as a means of compensating for inflation, as £100,000 in today’s economy will hold less value than the same figure in a few decades.
Life insurance protects your family
The main thing to take into consideration is that life insurance isn’t for you, as it’s an insurance product that protects your family members and their financial future. Even if you have multiple savings and investments, there’s a very high chance that your family’s living costs wouldn’t be fully covered in the event of your death.
That’s why life insurance is so important for couples and families, as it’s there to provide your loved ones with the financial means to remain in your home and continue the lifestyle they’re accustomed to despite the lost income stream.
Your funeral costs can be covered
Even the simplest funerals come with multiple costs, whereas the more comprehensive funeral packages can cost many thousands of pounds. If you were to die without life insurance, your family may find it difficult to find the money to cover your funeral arrangements.
Whilst life insurance doesn’t specifically pay for a funeral, you can inform your next of kin that some of the pay-out is to be allocated to covering the fees. Bear in mind that a life insurance policy can take anywhere from two weeks to a few months to enter a loved one’s bank account, so it might be a case of the pay-out essentially reimbursing them for the cost. Whatever the case, knowing that you’re paying for your own funeral brings significant peace of mind for everyone.
An investment in your children’s future
Neglecting to take out life insurance means that your family will simply be left with whatever you have in your bank account and investments portfolio. This may not last very long, which means that your financial legacy won’t have the capacity to support your children’s life events, such buying a house and getting married.
By taking out a suitably sized life insurance policy, you can make plans for how the funds should be distributed in the future. Whether it pays for a child to go to university or helps them to set up their own business when they’re older, it truly is a wise investment in the wellbeing of your offspring.
Protect your family’s future
LegacyScore helps you to decide how much life insurance to take out in order to cover the financial needs of your loved ones. By analysing your liabilities, we can work out the right amount of cover, which includes confirming whether or not any existing life insurance policies you own are adequate. In the process, we’ll help you to find and explore a wide range of life insurance deals, ensuring that you always receive the best price. To get started, sign up for your free LegacyScore account today.