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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 have collated the most frequently asked questions about life insurance 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.

2. Do I need life insurance?

If your loved ones would be unable to cover expenses in the event of your death, you may wish to consider life insurance. Find out more on our Do I Need Life Insurance page.

3. Is life insurance worth it?

A life insurance policy gives you peace and mind and confidence that your loved ones will be protected financially if the worst happens. This is achieved at a relatively small monthly cost in comparison to the financial protection it provides.

4. What does a life insurance policy cover?

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 Key Features documents for details of what is covered.

5. What is term life insurance?

Term life insurance is the most popular form of life insurance and covers you for an agreed period of time (the term of the policy). The term of the policy will be decided by you at the outset. Once the term ends, you will no longer be covered.

6. How much does life insurance cost?

The cost of your premium will be determined by the amount of cover you require and the type of policy. Lifestyle factors, your general health, age and the risk your hobbies and or job pose will all affect the potential cost. Find out more on our How are Life Insurance Costs Calculated page.

7. How much life insurance cover do I need?

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.

8. How does mortgage protection life insurance work?

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

9. Do I need mortgage protection life insurance?

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 cover the outstanding balance on your mortgage and wouldn't normally provide money for other expenses.

10. What is level term life insurance?

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.

11. Is life insurance taxable?

A life insurance payout won't 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.

12. What is critical illness cover?

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.

13. Do I need critical illness cover?

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.

14. Does life insurance cover cancer?

A life insurance policy generally won't pay out if you are diagnosed with an illness, such as cancer. If you want this type of cover, you need to purchase critical illness cover which would pay out if you were diagnosed with a specified critical illness.

It's important to carefully read your critical illness policies Key Features documents, so that you know exactly what is covered. In some cases, some types of cancers will only be covered once they reach a certain level of severity/stage.

Please see our Policy Features and Benefits Comparison.

15. Can I get life insurance if I already have a medical condition?

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.

16. Can I have more than one life insurance policy?

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.

17. My employer provides life insurance; will that be enough?

If your employee package includes 'death in service' benefits, your employer will pay out a lump sum if you die whilst working for 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.

18. How long does it take for a life insurance policy to pay out?

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. This is much more time consuming and usually takes around six months.

19. Does a life insurance payout stay the same regardless of when you die?

This depends on the type of life insurance you have. If you have level term life insurance, if you die 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.

20. If I don't die by the end of my policy's term, do I get any money back?

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.

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