DO YOU NEED IT?
Not everyone needs life insurance. But if your children, partner or other relatives depend on your income to cover the mortgage or other living expenses, then the answer is yes – you probably do want life insurance, since it will help provide for your family in the event of your death.
What is life insurance?
Life insurance can pay your dependents money as a lump sum or as regular payments if you die.
It’s designed to provide you with the reassurance that your dependents will be looked after if you’re no longer there to provide.
The amount of money paid out depends on the level of cover you buy. You decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.
You may need to think about whether receiving a pay out will affect any means tested benefits your dependents might otherwise be eligible for.
There are two main types of life insurance:
- Term life insurance policies: run for a fixed period of time (known as the ‘term’ of your policy) – such as 5, 10 or 25 years.
These kinds of policies only pay out if you die during the policy. There’s no lump sum payable at the end of the policy term.
What isn’t covered?
Life insurance usually only covers death – if you can’t provide for your family because of illness or disability, you won’t be covered.
Some life insurance policies provide a terminal benefit, although these are not automatically granted.
A terminal benefit will pay out on diagnosis of a terminal illness. Check the terms and conditions of your policy to see if you’re covered.
Most policies have some exclusions (things they don’t cover). For example, they might not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports.
If you have a serious health problem when you take out the policy, your insurance might exclude any cause of death related to that illness.
You can buy other insurance products for these issues, which cover:
- Long-term illness
- Critical illness cover, or
- Total and permanent disability
Do you need life insurance?
If you have:
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- Dependants, e.g. school age children
- A partner who relies on your income, or
- A family living in a house with a mortgage that you pay – a life insurance policy can provide for them if you die.
How much does life insurance cost?
Life insurance can be very good value.
The price you pay for a life insurance policy depends on a number of things.
These include:
- Your age
- Your health
- Your lifestyle
- Whether you smoke
- The length of the policy
- The amount of money you want to cover
For example, the younger you are and the less likely you’re to die from a medical condition, the cheaper your policy is likely to be.
Have you already got it?
If you have an employee package that includes ‘death in service’ benefits, this will cover you for a multiple of your salary.
It’s up to you to work out if this policy is enough to cover your needs and whether or not you need an additional life insurance policy.
Bear in mind if you stop working for that employer, you won’t be covered under their policy anymore.
DO YOU NEED IT?
Critical illness cover, also known as critical illness insurance, is a long-term insurance policy which covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.
What is critical illness cover?
Critical illness insurance will pay out if you get one of the specific medical conditions or injuries listed in the policy.vBut be aware that not all conditions are covered and policy will also state how serious the condition must be. Don’t confuse critical illness cover with life insurance, although they are sometimes sold together.
Every year, 1m workers in the UK unexpectedly find themselves unable to work because of injury or illness, according to the ABI (2015).
Examples of critical illnesses that might be covered include:
- Stroke
- Heart attack
- Certain types and stages of cancer
- Conditions such as multiple sclerosis
Most policies will also consider permanent disabilities as a result of injury or illness.
It only pays out once and then the policy ends.
Some policies will make a smaller payment for less severe conditions, or if one of your children has one of the specified conditions.
What isn’t covered?
Some serious illnesses might not be covered, for example, some cancers and conditions not listed in the policy.
You probably won’t be covered for health problems you knew you had before you took out the insurance, and this type of insurance doesn’t pay out if you die.
What’s covered and what’s not, will be set out in the policy details so make sure you’re fully aware of them and that they cover your needs.
Do you need critical illness cover?
State benefits might not be enough to replace your income if something goes wrong.
If you’re eligible, welfare benefits range from around £70 a week to just over £100 a week, depending on your circumstances (i.e. whether or not you have children, a certain level of savings, or if your partner works).
You should look at getting critical illness cover if:
- You don’t have enough savings to tide you over if you become seriously ill or disabled.
- You don’t have an employee benefits package to cover a longer time off work due to sickness.
Who doesn’t need it?
You might not need it if:
- You have enough savings to fall back on and can cover expenses such as bills, loans, medical costs or a mortgage.
- You have a partner who can cover living costs and any shared commitments, such as a mortgage.
- You already have some cover included in as part of your employer’s employee benefits scheme.
How much does it cost?
Your monthly payments will depend on a number of factors, including:
- Age
- The amount of cover you take out
- Whether you smoke or have previously smoked
- Health (your current health, your weight, your family medical history)
- Job (some occupations carry a higher risk than others and might mean you have to pay more each month
DO YOU NEED IT?
Each year close to a million people in the UK find themselves unable to work due to a serious illness or injury (ABI 2015). Income protection insurance is designed to give you some cover if you can’t earn an income for those reasons. If something happened to you would you be able to survive on savings, or on sick pay from work? If not, you’ll need some other way to keep paying the bills and you might want to consider income protection insurance.
Income protection insurance (sometimes known as permanent health insurance) is a long-term insurance policy designed to help you if you can’t work because you’re ill or injured.
It ensures you continue to receive a regular income until you retire or are able to return to work.
- It replaces part of your income – if you can’t work because you become ill or disabled.
- It pays out until you can start working again – or until you retire, die or the end of the policy term – whichever is sooner.
- There’s often a waiting period before the payments start – you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly premiums.
- It covers most illnesses that leave you unable to work – either in the short or long term (depending on the type of policy and its definition of incapacity).
- You can claim as many times as you need to – while the policy lasts.
With income protection insurance, everything depends on getting the right policy.
Do you need it?
According to the ABI, one million workers a year find themselves unable to work due to a serious illness or injury.
It doesn’t matter whether or not you have children or other dependants – if illness would mean you couldn’t pay the bills, you should consider income protection insurance.
You’re most likely to need it if you’re self-employed or employed and you don’t have sick pay to fall back on.
Check what your employer will provide for you if you’re off sick.
Who doesn’t need it?
You might not need income protection insurance if:
- You could get by on your sick pay. For example if you have an employee benefits package which gives you an income for 12 months or more.
- You could survive on government benefits. But they might not be enough to cover all your outgoings.
- You have enough savings to support yourself. Remember that your savings might need to see you through a long period.
- You could take early retirement. If you’re near retirement age, perhaps you could afford to retire early. If you’re unable to return to work you might be entitled to take your pension early.
- Your partner or family would support you. Perhaps your partner has enough income to cover everything the two of you need.
How much does income protection insurance cost?
How much you pay each month will depend on the policy and your circumstances.
Usually income protection insurance covers a wide range of illnesses and situations and has the potential to pay out for many years.
The cost of a policy will vary based on a number of factors, including:
- Age
- Job
- Whether you smoke or have previously smoked
- The percentage of income you’d like to cover
- The waiting period before the policy pays out
- The range of illnesses and injuries covered
- Health (your current health, your weight, your family medical history)
DO YOU NEED IT?
If you own your own home, you’ll need to have buildings cover just in case your home is damaged and needs a repair. It’s usually a condition of your mortgage and, if you’re a landlord, it’s your responsibility – not your tenants. Although it’s not compulsory, if you own your own home this sort of insurance should be a top priority.
Home insurance is a general term used to describe two very different types of insurance:
- Buildings insurance – for permanent fixtures and fittings, like kitchens and bathrooms
- Contents insurance – for things you keep in your home, like furniture, TVs, personal belongings and some types of flooring including carpets
You can buy both types of insurance separately, or in many cases, you can get them as a joint policy from one insurance company.
What is buildings insurance?
This is a policy which covers damage to the structure of your home such as the walls, roof and floors.
Do you need buildings insurance?
If you own your own home or are renting out a property then you’ll need to have buildings insurance.
Your mortgage will usually include this as a condition, so not having a policy in place could put your mortgage – and your home – at risk.
You don’t need buildings insurance if you’re renting a property, because it is your landlord’s responsibility to sort out a buildings insurance policy.