What is life insurance?
Life insurance is an insurance product that will pay out a lump sum payment to your family in the unfortunate event that you die.
Life insurance can provide your family with valuable finances that will help them to carry on living in their home, and to survive without you at such a difficult time.
Why do I need life insurance?
You need life insurance if you have financial responsibilities which your family could not take over if you were to die. Somebody with a mortgage and children is someone with financial responsibilities, and in families where both parents work, and their income is needed to keep the home running, life insurance can really make a difference.
Should you unexpectedly die, if you have life insurance your life insurance payout will often pay off the mortgage, and leave your family with enough money to survive while they find their way back on their feet. Without life insurance you can leave your family in a financial mess, and as a result the family could lose their home.
This is one of the main reasons many mortgage lenders make life insurance a compulsory part of taking out a mortgage.
How does life insurance work?
There are two different main forms of life insurance. Whole life insurance, which covers you against death for your whole life, or term life insurance, which covers you during a certain term. This term if often until you reach a certain age, or pay off your mortgage.
Term life insurance is a lot cheaper than whole life insurance because most people outlive their insurance term.
When you take out life insurance, you need to calculate how much money your family would need in your absence, and you then base your policy around this. The policy will cost a different amount for different pay out amounts, and generally a term life insurance policy is around eight times cheaper than a whole life insurance policy because of the nature of the two policies.
Term life insurance vs whole life insurance
Whole life insurance is more expensive but offers a guaranteed return on investment. Term life insurance offers protection when you need it the most. At your point of most financial responsibility. Once you reach an age where you have paid off your mortgage and your children have left home there is usually much less of a need for life insurance.
When purchasing life insurance there are many other forms available such as unemployment cover and critical illness insurance.