What is life insurance?

Life insurance is cover that pays out a lump sum if you pass away during the policy term, or if you’re diagnosed with a terminal illness and not expected to live longer than a year. It’s there to provide some financial support for your loved ones after you’re gone, whether that’s helping pay off the mortgage or maintaining their standard of living. 

New to life cover? Our life insurance glossary helps explain some of the key terms.

We offer term life insurance which covers you for the length of your policy. And you can choose how long you want to be covered for, whether that’s just 12 months or as long as 50 years. When deciding, you might want to think about how many years you have left on your mortgage or when your children might start earning their own income.

Bear in mind our life insurance has no cash in value and, if your payments stop, so does your cover. The policy only pays out once and ends after that.

As well as the type of policy you choose, there are several factors that can influence the cost of your premiums. The price you pay usually depends on:

• Age – The older you are, the more expensive your policy might be. This is because with age comes an increased risk of developing a medical condition that may affect your life expectancy
• Lifestyle – Leading an unhealthy lifestyle can increase premiums. For example, drinking too much alcohol or being overweight can shorten life expectancy. Premiums will typically be higher to reflect this
  
• Health – Having a pre-existing medical condition can affect the price you pay. Some more serious, chronic medical conditions mean that premiums will usually be higher
  
• Family medical history – Insurers may ask if your parents or siblings have a history of a serious medical condition. For some people this may impact your price, as there can be a greater risk of you suffering from the same condition
  
• Occupation – If you have a dangerous job, it’s possible that you’ll have to pay more than someone who works in a lower risk profession e.g. an administrator role
  
• Smoker status – A Smoker can expect to pay more for life insurance cover than non-smokers because of the associated health risks associated. This includes all nicotine replacement products and vaping
  
• Length of cover - Life insurance policies with longer terms can be more expensive than ones with a shorter term
  
• Amount of cover - You decide how much you’d like to be covered for. Generally, the higher this is, the higher the premiums will be

When applying, make sure you answer the questions accurately and honestly.  If you don't, it could affect whether your insurer pays out the claim on the policy in full as insurers will check the answers they receive.

Life insurance is designed to help your family cope financially when you pass away. If you suffer a serious illness that may have an impact on your finances, you could consider critical illness cover. What your life insurance will and won’t cover depends on which company you’re with, so check your policy documents, but the basic principles are the same.

But yes, if you die in a bungee jumping accident, we’ll still pay out – no guarantees your left-behind loved ones will ever forgive you, though.

Everyone has different financial needs, so we offer two types of term life insurance: level cover and decreasing cover.  Which one you choose impacts how your cover amount may change over the term of the policy, and therefore how much the cover may cost.  

Decreasing cover can be suitable to help pay off a mortgage as long as you make sure your cover keeps track with your outstanding balance and mortgage term. If you make changes to your mortgage, like changing your fixed rate or re-mortgaging you may want to review whether your life insurance is still meeting your needs.

With level cover, you choose the the lump sum amount you want to leave to your loved ones and select how long you want the cover to run for.

Generally, the answer is yes, but you’ll need to make sure the right arrangements are in place.

If you have a joint life insurance policy, when you pass away the money will usually go to the surviving policyholder – that is, the other person you had the policy with – unless you made other arrangements. If you and your partner seperate, you may be able to split your joint policy into single policies.

If you have a single life insurance policy, the money will be paid into your estate. So, it’s very important that you make your wishes known.

If you want to choose a beneficiary (the person who’ll benefit from the lump sum payout) you could consider placing it into a Trust. Here are the potential benefits of doing this:

• As the policy is being placed in a Trust, it won’t count as part of your taxable estate when you pass away. This means that any money passed on to your beneficiaries is usually exempt from Inheritance Tax ^{Footnote [1]}
  
• The money can reach your beneficiaries more quickly if you appoint additional trustees who then deal with this after you pass away
  

You can also make it clear who you’d like to receive the money from your life insurance policy when writing a will. However, this may not be as tax efficient as placing it into Trust.

It's a good idea to seek independent legal and financial advice when thinking about placing a life insurance policy into Trust or writing a will.

Whether you need life insurance depends on your personal circumstances. Do you have people who depend on you financially, like a partner or children? If so, life insurance could help give them a financial safety net if you’re no longer around to provide for them. Payouts from life insurance can be used to help pay off mortgages, cover costs of raising children and for monthly bills. If you haven’t made any provisions for your loved ones in case you pass away, you might want to think about getting life insurance.