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How does Life Insurance work?

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Mika, Staff Writer

Friday, 4th June 2021

Life Insurance

How does Life Insurance work?

Life insurance is something that can feel both daunting and confusing to talk about. Hence, people put it off until their premiums would be too expensive to be worthwhile, or they don’t bother at all - potentially leaving their families vulnerable to financial hardship.

In reality, we all need a plan in place for when we die, especially if you happen to have dependents that would suffer financially without your income. Since tomorrow is never guaranteed, you need to know that your family will be protected in all eventualities. 

If you don’t know where to start with life insurance, we’ve put together the following guide to break it down on a level you can understand. Or, if you’re ready to get started with your quote - skip ahead to the end of this article to find life insurance experts near you

What does Life Insurance do?

Life Insurance

The idea of life insurance is that it will pay out a set amount of money in the event you die, either within a specific date range or at the end of your life regardless of when you die. 

However, what most people don’t realise is that you can customise your life insurance so it covers exactly what you want it to and for how long.

When you search for life insurance quotes, you can tailor your cover to include any of the following: 

  • Pay your mortgage

  • Give a lump sum to your family

  • Pay for future expenses (education, weddings, house deposits etc)

  • Pay for your funeral

  • Settle any remaining debts

  • Cover any legal fees relating to your estate

  • Offer critical illness cover

  • Reduce potential inheritance taxes

With these options in mind, it’s best to think of life insurance as a financial safety net for your family. In some cases, the payout is needed to cover the immediate essentials, and for other people, they want to ensure their loved ones are well looked after in the future. 

Think you need life insurance but not sure how much? Read our simple guide to find out how much life insurance you need.

What do insurers consider when quoting for Life Insurance? 

  • Age

  • BMI/weight

  • Existing health conditions

  • Number of dependants

  • Occupation

  • Smoker or non-smoker

Whole life insurance

When most people think of life insurance, they are actually referring to whole life insurance, which is a guaranteed payout when you die. Other types of life insurance are not always guaranteed, as they will only payout if you die within the time that you pay your premiums over. 

Whole life insurance is more expensive due to it paying out regardless, whereas other insurance types work on the premise of ‘what if’. 

While tax works differently around the world, most commonly whole life insurance can be used to avoid hefty inheritance taxes, because life insurance payouts aren’t usually taxable. Therefore, it can be a nice way to leave money for your children or grandchildren, without having to worry about the financial implications it may mean for them. 

Life term insurance

Life term insurance (also known as term life insurance) is paid over a fixed period, and the insurance will only payout if you die within this time. For that reason, life term insurance is usually much cheaper, because the payout is not guaranteed. 

Someone would take out life term insurance if they want to protect their family from financial difficulty up until a certain point. For example, while the mortgage needs paying off or until their youngest child reaches 18. 

If you would want a guaranteed life insurance payout, then you should opt for a plan that offers the option to extend your policy. Otherwise, you’d need to take out separate whole life insurance when you are no longer covered by your life term insurance. 

Do you have to have Life Insurance for a mortgage?

Life Insurance

There’s no legal requirement to have life insurance if you have a mortgage. However, some mortgage lenders will state it is a requirement if you are to take a mortgage with them. So it may affect your rates if you cannot secure a mortgage with your chosen lender, which could cost you far more in the long run if you miss out on the best deal. 

If you aren’t planning on getting life insurance to cover your mortgage and you have dependents (or are looking to start a family), then you would need a plan in place for what would happen if you die. Otherwise, if the mortgage and bills couldn’t be paid by your dependents, then the home could be repossessed. 

The good news is that mortgage only life insurance is extremely cheap, especially compared to whole life insurance. To secure the very best rates, you’ll need to be a non-smoker (haven’t smoked in the last 12 months) and ideally be fit and well. If you're not sure what mortgage you need depending on your circumstances, you should contact a mortgage advisor for expert advice and guidance. This will ensure you choose the best mortgage for you and your family.

Life Insurance instant quote

In search of some life insurance quotes to get your family protected? Here at Bark, we have professionals for every service you need located across the globe, including life insurance experts near you

Simply head over to our life insurance page. Tell us where you are based, and what type of cover you are looking for. From there, we’ll provide you with a list of quotes for life insurance, without even having to head to the bank or spending hours talking to a call centre.

If you're unsure, your chosen expert can advise you of the best policy depending on your circumstances.  Getting your life insurance sorted and that all-important peace of mind is as easy as that!

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