Although it’s tough to think about, in reality, we’re all going to die one day. But what happens to our loved ones should the worst happen and we are no longer there to provide for them? Life insurance is a great way to protect your family’s future for the difficult times ahead in life. Where there’s life insurance, there will be cheap life insurance, but how can you find a policy for the best price?
There’s a common misconception that life insurance is expensive, but that isn’t always the case. The first step in finding cheap life insurance is understanding what life insurance is and the types of policies available.
In this article, we’ll take a look at the different types of life insurance and ways you cut costs on policy premiums.
What is life insurance?
Simply put, life insurance is a type of insurance that covers you in the event of death. Upon your death, a lump sum payment gets issued to your beneficiaries. Pay-outs can provide your family with financial support in many ways.
When you take out a life insurance policy, you will start paying monthly or annual premiums. The length and cost of a policy depend on the type of life insurance chosen to take out. Also, several factors determine the cost of your premiums – but we’ll get to that later!
For now, let’s look at the main types of life insurance cover and how they work.
Types of life insurance cover
There are two main types of life insurance cover – Whole of life insurance and term life insurance. Though these policies sound similar, they operate differently from each other.
Whole of life insurance
As the name would suggest, Whole life insurance covers you for the remainder of your life. That means the policy is guaranteed to payout when you die – just so long as you keep up with your monthly premium payments. Though this policy is usually more expensive than other types of life insurance, a guaranteed pay-out gives both you and your loved one’s peace of mind.
Whole life insurance usually works in two main forms – Standard cover & Maximum cover
- Standard cover – or ‘non-profit whole of life cover’, works just as you might expect. With this cover, your policy premiums stay the same throughout the policy, including the pay-out value. When you eventually die, your insurance provider pays out a fixed cash sum to your loved ones.
- Maximum – or ‘with-profits whole of life cover’, works a little differently from standard cover. Your policy is linked to an investment fund, set up by your insurer. They invest the money paid towards premiums, to make a return. The end goal is for the money made on the investment to cover the eventual pay-out cost. The downside to this is that if your investment underperforms, your insurer may raise your premium costs to cover the loss.
Term life insurance is usually cheaper than whole of life insurance. This is because term life insurance only provides cover for a set period (known as the policy term). Because of this, there isn’t a guaranteed pay-out, nor will you receive any money if you outlive the policy term.
Though it is cheaper than whole of life, it comes with uncertainty. With a term life insurance policy you run the risk of having to take out further coverage should you survive the policy term. There are 3 main types of term life insurance – Level term, increasing term & decreasing term.
- Level term cover is the standard option for term life insurance. Providing you die within the length of your policy, your insurer will issue a lump sum to your family. The pay-out amount remains the same throughout the policy.
- With increasing term, the policy value increases over time This is to protect the eventual pay-out from the effects of inflation.
- As the opposite of increasing term, with decreasing term, the pay-out reduces over the time of the policies length. It’s intended to cover large payments like mortgages, loans. Should you die before the policy term ends, then your family can use the pay-out amount to pay off the remaining balance on a downpayment.
No matter which type of life insurance you decide to buy, make sure to go over the small print. You need to understand what your policy covers as providers each carry their terms & conditions.
How to get cheap life insurance?
We all love a good bargain when we see one. With life insurance, a big part of the cost is down to yourself. Before taking out a life insurance policy, your insurance provider will usually ask you some health & lifestyle questions. Your answers give them an insight as to how soon you make a claim.
Typically, they’ll ask you about:
- Your age
- Your health
- If you are a smoker
- The length of cover you want
- The amount of coverage needed
Take out cover when you are young
One way to get cheap life insurance is to take out cover whilst you are still young. Though it’s never too early or too late to take out life insurance, the earlier you do so, then the cheaper it will be. This is because as you get older, the likelihood of death rises.
Consider taking out a joint policy
Joint life insurance provides cover for two people within a single policy. It is especially useful for spouses, couples or business partners as it saves them from taking out two single policies. Joint life policies can work out cheaper than two single policies as well as being easier to manage.
Joint life insurance works in two ways – first death & second death.
First death is where the policy pays out after the first death in the partnership. The surviving member will need to take out additional cover if you want it.
Second death pays only out once both policyholders have died. This is ideal for couples with children. For example, if both parents died together in a car accident, their children would be provided financially.
Speak to an insurance broker or financial advisor
We all need a helping hand sometimes, a financial advisor or insurance broker can help you find the right policy for the best price. With so many life insurance providers out there it can often be overwhelming. An insurance broker or financial advisor can assist in finding a policy that fits you and your families needs, for the right price.
Why do I need life insurance?
Nobody wants to see their family out of pocket, even more so if we’re not around to help. Life insurance can help you to ensure that your family is protected financially for years to come. Amongst many things, life insurance can help with:
- Paying off outstanding debts like a loan or mortgage
- Your families everyday living and childcare costs
- Education costs such as university tuition
- Providing your family with a cash gift or inheritance
- Additional expenses brought on by your death such as funeral costs
Death is unexpected, and while it can be an uneasy topic, it’s always better to be safe than sorry. As long as you have dependents, life insurance is a simple way to ensure they are protected when the time comes.
Why take any chances? Get cover for yourself and your loved ones today!