FAQs about life insurance

At Compare Cover, we compare level term life insurance, decreasing term life insurance (also known as mortgage protection life insurance) and critical illness cover from leading insurance providers. We understand you may have many life insurance policy questions, which is why we have collated a list of life insurance FAQs below.

1. What is life insurance?

The purpose of life insurance is to protect your dependants financially in the event of your death. If you die during the term of the policy, it will pay out a lump sum. Your dependants could use this to cover mortgage repayments, funeral costs, utility bills and other specific debts. Find out more on our 'What is life insurance' page.

When you take out a life insurance policy, you will pay a sum of money (known as the 'premium') at regular intervals; usually monthly. When completing your application, you will need to answer questions about your health and give details about your lifestyle. Your answers to these questions will help the insurance provider determine the premiums you will need to pay.

There are different types of policies that provide different levels of cover. Should you die within the policy term specified (as long as all requirements have been met), a sum of money will be paid to your dependants or loved ones.

Of course, there are requirements surrounding your policy, and if these are not met, the insurance provider may not pay out. Assuming you have been accurate with your answers during your application, this isn't something you should normally be concerned about. Find out more on our 'What is life insurance' page.

If your loved ones would be unable to cover expenses such as mortgage repayments or utility bills in the event of your death, you may wish to consider life insurance. Find out more on our 'Do I need life insurance' page.

A life insurance policy gives you peace of mind and confidence that your loved ones will be protected financially should the worst happen. This may be achieved at a relatively small monthly cost in comparison with the financial protection it provides. So, for many people life insurance is worth the associated cost.

Life insurance policies will cover the death of the policy holder(s) within the term of the policy selected. Alongside life insurance you can also purchase critical illness cover, which will pay out if the policy holder is diagnosed with a specified critical illness within the term of the policy. Cover provided will vary between providers so it's always important to read the providers documentation for details of what is covered.

Term life insurance is the most popular form of life insurance and pays a fixed or reducing lump sum should you die within the term of the policy. The term of the policy and the amount payable will be decided by you at the outset. Once the term ends, you will no longer be covered.

The cost of your life insurance premium will be determined by the amount of cover you require and the type of policy you choose. Factors such as your lifestyle, health, age and any risks posed by your hobbies and or job may all affect the potential cost. Find out more on our 'How are life insurance costs calculated' page or compare life insurance quotes now.

The amount of life insurance cover you need will depend on your specific circumstances. It's important to carefully consider all of the financial needs your dependants may have in the event of your death, which may include any outstanding mortgage, school fees and debts.

In the past the term 'life assurance' was used to refer to policies that covered an individual for the whole of their life - they were 'assured' of receiving a payout. Today however the terms 'life insurance' and 'life assurance' are used interchangeably.

Also known as decreasing term life insurance, the cover provided by a mortgage protection life insurance policy is designed to decrease roughly in line with a standard repayment mortgage. As the outstanding debt on your mortgage decreases over time so will the amount the policy would pay out.

If your dependants wouldn't be able to afford your mortgage repayments in the event of your death, then you may wish to consider mortgage protection insurance. However, it's worth bearing in mind that with this type of insurance the payout is designed to roughly cover the outstanding balance on your mortgage and wouldn't normally provide money for other expenses.

Life insurance isn't compulsory when you take out a mortgage. The only insurance you need as a legal requirement when getting a mortgage is buildings insurance. However, taking out a mortgage is a big financial commitment, and you should consider life insurance if your loved ones would struggle to meet the mortgage repayments as well as other household bills if you were no longer around.

Level term life insurance is a type of term life insurance in which the amount of cover doesn't change throughout the policy. If you died at the start of the term, your family would receive the same payout as if you died towards the end of the term.

A life insurance payout won't normally be liable for income tax or capital gains tax, however it may be liable for inheritance tax above HMRC thresholds.

You can potentially avoid this by writing the policy in trust, which will result in the proceeds being paid into a trust in the event of a claim. This would prevent the amount paid being included in your estate. See our life insurance and inheritance tax page for more details.

Critical illness cover is a type of life insurance policy that pays out in the event that you are diagnosed with a specified critical illness. It can either be integrated with a life insurance policy or purchased alongside it.

Many of us know people who have suffered a heart attack, cancer or other serious conditions. If you were diagnosed with a serious illness and could no longer work, would your dependants be able to cope financially? If the answer is no you may wish to consider critical illness cover to ensure you and your family are protected should this happen to you.

Your current and previous medical history will be taken into account and the level of premium and cover offered will reflect this.

It is important to answer all questions truthfully and declare all conditions as failure to do so may lead to your policy being cancelled or any claim being declined.

Yes, you can take out as many life insurance policies as you wish. You may want to get additional life insurance cover if your circumstances change; for example, if you acquire a new debt or have a baby.

If your employee package includes 'death in service' benefits, your employer's scheme will pay out a lump sum if you die whilst employed by them. In these circumstances, you may not need additional life insurance.

However, you should work out if the amount offered by your employer would be enough to financially support your dependants. If not, you may need to purchase additional life insurance cover.

If your life insurance has been written in trust the proceeds of the policy will be paid directly to the beneficiaries. In these circumstances, the process can take just a few days.

However, if a life insurance policy isn't written in trust, the proceeds will be counted as part of your estate. As a result, they will have to go through a legal process known as probate or letters of administration dependent upon whether you have a will. This is much more time consuming and usually takes between 9 and 12 months.

This depends on the type of life insurance you have. Should you have level term life insurance, the payout will be the same regardless of when the claim is made during the policy term.

However, if you have decreasing term life insurance, the amount of cover will decrease throughout the term. So, if you died at the start of the term, the policy will payout more than if you died towards the end of the term.

At the end of the policy term there is no cash-in value. If the end of the policy term is reached without a claim being made, then the policy will not pay out.

At Compare Cover our goal is to help you compare life insurance policies for you and your family. Our easy-to-use life insurance comparison tool allows you to get discounted quotes from leading UK providers within 4 minutes. Compare life insurance quotes now.


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