If you were to ask life insurance agents and life insurance companies what question they get asked the most it would be, “How much does £100,000 of life insurance actually cost?”
While this is an important question, it is also important for policy seekers to know that the cost of life insurance is dependent on a number of different factors.
Before deciding on a life insurance policy, make sure to take into consideration the different aspects of your life and your needs and wants from an insurance policy.
What is Life Insurance?
In order to understand how much £100,000 of life insurance costs you, it is important to know what life insurance actually is. Life insurance is a binding agreement between a life insurance company and an individual – in exchange for the individual making monthly payments, known as premiums, the insurance company agrees to provide a sum of money to beneficiaries when they pass away.
This money is then used to pay the person’s final expenses and outstanding debts so the family does not have to.
Are there Different Types of Life Insurance?
What many policy seekers may not realise is that there is not one “end all, be all” life insurance policy to choose. There are, in fact, a number of different policy options that individuals can choose from in order to find the right fit for their needs and their family. Here we will outline some of the most popular life insurance policies and explain how each of them work in terms of premiums and coverage.
Level Term Assurance is the most basic type of life insurance
With this policy, the individual makes set premium payments for a predetermined amount of time, also known as a term.
Should the individual pass away during this term, the insurance company will pay the beneficiaries a lump sum of cash to help cover final expenses, outstanding debts, and to cover living costs.
The cash from this type of policy is most often used to pay off outstanding credit card debt and/or a mortgage balance.
Family Home Benefit works in exactly the same way as Level Term Assurance
Except, instead of beneficiaries receiving a lump sum of money, they receive regular benefit payments over a determined amount of time. This type of life insurance is often chosen by those who wish for the beneficiaries’ payments to be spread out and act more like a steady income than a single, large payment. This is often the case when young children or younger adults are the listed beneficiaries on a policy.
Decreasing Term Insurance
Is a policy that features decreasing premium payments and decreasing coverage throughout the course of the policy’s term. This means that, over time, the policy becomes less expensive but the amount of the lump sum pay-out also decreases. Individuals who choose this type of policy are often primarily concerned with making sure their outstanding mortgage is paid off – as the amount due on the mortgage decreases, so does the amount of cash the policy pays out.
Whole of Life Insurance
Works exactly the same as Level Term Assurance but, instead of the individual only being covered for a set term, the policy covers them for their entire life. Since the “term” technically has no end, the premiums for this type of coverage are often much higher than the other options.
Whole of Life is most often used when the policy holder has a continuous need for the lump sum pay-out to beneficiaries, such as covering the fees of an estate or large outstanding debts.
How is the Amount of Premium Payments Determined?
The “cost of life insurance” or the policy’s premium payments are calculated based on a number of different factors. Every insurance company is different in how they determine the amount of a premium, but there are some general factors that they all share.
Some of these factors include what type of policy chosen, how much they require in a lump sum pay-out, how long the policy covers them, the individual’s overall health, their choice in lifestyle and activities, and if they are a smoker.
How Much Life Insurance Do You Need?
The amount of life insurance coverage, more easily explained as the amount of the lump sum payment, an individual needs will be based on his or her own unique circumstances. Although each person’s decisions is his or her own, there are some questions you can ask yourself to make sure you are getting the type and amount of coverage you and your family needs. Consider how outstanding debts like mortgages and credit cards will be paid, how final expenses will be managed and, most importantly, how your family will handle the costs of living without your regular income available to them.
What Else Should I Be Thinking About When Choosing a Life Insurance Policy?
While we have covered many of the main points individuals should be focusing on, there are some additional considerations you may want to make when choosing a life insurance policy. First, make sure to be honest with yourself about your health – should you have continuing health problems or a chronic condition, it may be hard for you to find life insurance coverage that is affordable.
Consider talking to a life insurance specialist like the ones at Genesage – these professionals can help to match you with a company that will work with your health problems to provide you with a policy.
Also, if you and your partner are considering a joint life insurance policy, it is important to know that joint policies only pay out one time, when the first of the two policyholders pass away. This means, when the remaining partner passes away, there will be no financial assistance.
While this is a cheaper option that may work for some couples, also consider that two separate life insurance policies will be twice as expensive but will offer surviving family members twice the financial support.