Life insurance pays a set amount of money, called the death benefit, to the people you name when you die. It is mainly used to replace income, pay off debts, cover final expenses or leave money to family, a business partner or a charity.
The main types
- Term covers you for a fixed period, such as 10, 20 or 30 years. It is usually the lowest-cost way to buy a large amount of cover. If you outlive the term, the policy ends and pays nothing. Many term policies can be renewed, but at a much higher rate, and some can be converted to permanent cover without a new medical check.
- Whole life is permanent cover that lasts for life as long as premiums are paid. It builds a cash value, and some policies pay dividends. It costs more than term for the same amount of cover.
- Universal life is permanent cover with a separate investment account inside the policy. It is flexible but more complex, and the investment side can lose value.
What affects the cost
Your age, health, smoking status, build, family medical history, occupation, the amount of cover and the type of policy all matter. Buying younger and healthier generally costs less, and the price is usually fixed at the start for term cover.
How much cover people look at
There is no single right number. A common starting point is to add up what your family would need: income replacement for a number of years, outstanding debts such as a mortgage, children's education, and final expenses, then subtract savings and any cover you already have through work. Cover through an employer usually ends when you leave the job, so it is worth knowing what you would still have.
Questions to ask an advisor
- Is this term or permanent, and what happens at the end of the term?
- Can I convert or renew it, and on what terms?
- What does the policy exclude, and what is the contestability period?
- Who is the beneficiary, and what happens if that person dies before me?
- What would the policy look like if I stop paying?
Common mistakes
- Relying only on group cover from work.
- Naming no beneficiary, or an out-of-date one.
- Choosing by premium alone without checking what the policy actually offers.
- Answering medical questions loosely. Mistakes or omissions on the application can lead to a claim being reduced or refused.