What is life insurance?

Stepping into your new home or holding your new born baby are joyful experiences. However, both of these life developments also come with a certain amount of pressure. If the worst happened and you or your partner passed away, who would pay for the mortgage? Would your family be able to cope financially with the loss of your income or the costs associated with what you provide such as childcare and managing the home? This is where life insurance comes in, but what is life insurance and how can it help?

First and foremost, life insurance offers peace of mind. In the event of your death, your dependants can receive a lump sum, allowing them to pay off debts, such as your mortgage and plan for the future.

In this guide, we'll answer the key question "what is life insurance", along with many other queries, to help you make an informed decision about your life insurance quote.

Do I need life insurance?

Whether you need life insurance or not will depend on your circumstances. If you are single and have no dependants then it's likely to be an unnecessary expense. However, if you are supporting people financially, have a mortgage or other debts then it is something that you should seriously consider.

People who commonly require life insurance include sole breadwinners (those who are the only earners for their family), stay-at-home parents (whose death could result in additional costs such as paid childcare being needed) and single parents. If you are a couple and you both work, you may still need life insurance if either of your salaries could not independently financially support your household.

Visit our Do I Need Life Insurance page to find out more.

How does life insurance work?

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 several questions about your health, activities, and other details about your life. Your answers to these questions will help the provider determine the premiums you would need to pay.

There are many different policies that will provide different levels of cover, but should you die within the 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 and regulations surrounding your policy, and if these are not met, the insurance provider may not pay out. But this isn't usually something to be concerned about, assuming you have been accurate with your answers during your application.

What is Life Insurance?
How much life insurance cover do I need?

What types of life insurance are available to me?

There are a number of different types of life insurance and the best one for you will depend on your particular circumstances. At Compare Cover, you can get quotations and purchase the following types of cover:

Level term life insurance - An agreed sum is paid out in the event of your death during a chosen period/policy term. Find out more on our Level Term Life Insurance page.

Mortgage protection life insurance - This is also known as decreasing term life insurance, in which the amount of cover decreases roughly in line with a standard repayment mortgage. Find out more on our Mortgage Protection Insurance page.

Critical illness cover - This can be purchased alongside or integrated into level term life insurance or mortgage protection insurance, and will pay out if you're diagnosed with a specified critical illness during the term of the policy. Find out more on our What is Critical Illness Cover page.

What does life insurance cover?

Life insurance policies will pay out in the event of your death. If you require a policy that pays out a lump sum should you become seriously ill, critical illness cover can be added on to your life insurance policy as an additional benefit.

The majority of policies also list things that they won't cover - also known as life insurance policy exclusions - so it's important to read the policy details.

In some cases, providers may increase your premiums, make a specific exclusion to your policy, or decline to offer you cover if you have an existing serious illness. Lifestyle factors such as being a smoker, excessive alcohol consumption or regularly engaging in dangerous pastimes such as extreme sports may also affect your premium or cover offered. It's important that you fully disclose all material facts to your provider and truthfully answer all the questions they ask. If you hold anything back, they will be within their rights to cancel your policy or not pay out in the event of a claim.

How much life insurance cover do I need?

How much cover you need will depend on your specific circumstances. However, without enough research it can be difficult to know where to start.

There's no one-size-fits-all solution and ultimately it depends on what you need the policy to cover. As well as considering what you want to cover, you need to ensure the policy is affordable.

At Compare Cover, we provide you with a life insurance calculator to help you consider what your cover level requirements might be. Click the button below to go there now.

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Life Insurance Cover Calculator

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How much is life insurance?

The amount you spend on your life insurance policy will depend on the type of cover you take out, the term of the policy and your personal circumstances. The cost of your life insurance premiums will be determined based on a number of factors, such as:

  • Your age
  • Your amount of cover
  • Your policy term
  • Your medical history
  • Whether you smoke
  • Your lifestyle

Depending on how the above factors affect you, the premiums you are likely to pay will vary.

Is there a difference between life insurance and life assurance?

Historically the term 'life assurance' referred to policies that covered an individual for the whole of their life - they were 'assured' of receiving a payout. However, today the terms are often used interchangeably.

Life insurance usually refers to term life insurance, which will cover you for an agreed time period - usually between 5 and 30 years - which you can decide at the outset of the policy. The policy will only pay out if you die within this agreed term and has no investment element.

You can find further helpful information within our life insurance guides or you can compare quotes now.

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