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Do I Need Life Insurance

Not sure if you know this, but one day you’ll die. I hope it’s not for a very long time, and then it’s a really impressive way that you do finally go. But in life it’s one of the certainties we all have to deal with. And let’s face it, when you’re dead, you probably don’t care much about money anymore. But you may like a few people who end up sticking around after you’ve gone. And this is why we have Life Cover.

This article forms a part of a series where we review the main types of insurance and protection products you can buy.

Life Cover (Whole or Term)

What is it?

Simply put, Life Cover pays out when you kick the bucket. It’s known as an assurance rather than insurance, because it’s assured to happen, i.e. you are definitely going to die one day. Sorry to be the one to break it to you if you didn’t realise.

Usually the reason for Life Cover is to pick up the cost of a mortgage should you die and you don’t want your partner to be stuck with a big ass mortgage. But it could be for anything really, inheritance tax planners use Life Cover to pay the inheritance tax bill, you might just want to cheer people up when you die by giving them some inheritance if you haven’t saved up a large estate to pass down.

Whole of Life Cover – covers the whole of your life. It might stop at 90+ years of age, but basically it lasts as long as you do, so will definitely pay out!

Term Cover is for a set term. So it tends to be much cheaper as if you live longer than the term, the insurer doesn’t have to pay out. This is usually tied in with the length of time you might have a mortgage in place, or to cover your kids while they are useless munchkins who can’t fend for themselves.

Level / Decreasing / Increasing – this just refers to whether the amount of money that will be paid out is staying the same, going down or going up. I’ll leave you to figure out which is which. 

Why would I need it?

There’s a whole bunch of reasons why you might decide you need it, but the usual reasons are;

  • Clear a mortgage on your death
  • Pay an inheritance tax bill
  • Provide an inheritance for your kids
  • Funsies

Generally speaking though Life Cover is most relevant for people who have a mortgage with someone else, or who have kids. If you pop your clogs, if people are going to struggle to keep paying for things, then Life Cover might be a good shout.

But what about Death In Service, I hear you say? Quite a few employers provide this, and it can be a good cover. The only thing worth mentioning is to check it does in fact cover all of the debts you want covered, and provides you with the amount of money you’d like whoever is left to get.

Gimme an example

Without Life Cover: Mr S is married with kids and a £300k mortgage. He has a good job earning £35k a year that gives him death in service benefit of 4x salary (£120k in other words).

In a freak fishing accident on the M11 he dies. Sad sad times. He was a bit of a legend, so everyone is gutted.

Once all the dust and ashes settle, his wife receives the death in service benefit of £120k which she uses to pay for the funeral and clear a few credit card debts etc. With the remaining £80k she knocks it off the mortgage.

It’s just her now, raising two kids, with a mortgage of £220k which is costing her £900 per month. Did I mention she didn’t have a job as she was raising the kids?

She has to sell the house, pull the kids out of their school because they can’t afford to stay in the area anymore. Stupid high house prices. She goes back to work to bring in some money, but the littlest one isn’t in school yet and as she can’t afford the nursery fees, she has to rely on her family and friends.

In the end she hooks up with Mr S’s creepy boss just to get a stable income and avoid bankruptcy.

With Life Cover: Mr S is still dead and buried thanks to that flying carp on a motorway. But he had taken out Life Cover this time so Mrs S ended up with £420k which was enough to cover the mortgage, pay for the funeral, clear all the families debts, and still have £80k left over that she uses to invest and provide a buffer while she gets the second child off to school and starts working again.

Mrs S’s creepy boss ends up being forced to resign for sending inappropriate emails.

How much does it cost?

There are so many variables it’s really hard to give a good idea of costs, but if we use me as the example again and assume £350,000 would be a tasty sum to cover a home mortgage and give some spending money to whoever might be left.

A very quick scan of what’s available right now (accurate as of 1st May 2018), the cost of this ranges from £29.80 per month all the way up to £322.07 per month.

What the actual fuck, huh?

Now the cheapest ones are ‘reviewabe’ premiums, which means after 5 or 10 years the lender will have a think and decide to change your premium. Guess which way it’s most probably gonna go?! The more expensive ones are ‘guaranteed’ which means they will cost you the same amount each month forever, or will only increase by a set amount – RPI or a set % each year. But at least you know what you’re getting into when you start out.

The other factor is what discounts are given for being ‘healthy’. But suffice to say, given the HUGE difference in prices, it’s very important you don’t just grab the nearest thing you can find online and hope it’s the best. Speak to someone in the know to figure out what’s the best bet for you.

Usefulness for me?

If you have any dependants, or any charities you want to donate to, or any debts that you don’t want others to have to sort out on your death, then Life Cover is really useful.

If you’re a single loner like me, maybe not so much.

So What Insurance Do I Need?

Ain’t nobody that financially bothered if I die. All my mortgage debt will be cleared by the houses that they are attached to, so the lender won’t care.

The money that’s left over will go to either my family or the charities I’ve nominated in my will.

As soon as I get a joint mortgage with someone though, I’ll be taking out a joint policy so that the mortgage is cleared if either one of us dies. Just to make life easier, especially if we are reliant on each other’s incomes to pay for life.

If I get myself a Sugar Momma, then I may not bother taking out Life Cover on myself, but I definitely will take it out on her! ?

It’s just a case of figuring out what will happen in the shitty situation that you’re no longer here. Does it impact on anyone in a negative way? Do you care about that person? Does that negative impact make you feel a bit bad? Is it worth paying something to remove that bad feeling?

Pretty sure that’s what it boils down to anyway.

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