Decreasing Term Life Insurance

Put simply, life insurance works by paying a premium each month to your provider, which you’ll have to keep up for the duration of your policy. On your death, the people named in your policy (called your beneficiaries) will receive a tax-free lump sum or regular payments. How much this is depends on the level of cover you have chosen. And, of course, it’s also on the proviso that you die within the specified term of your policy.

It’s always advisable to compare life insurance quotes before taking out a policy. You and your family’s individual circumstances will determine how much cover you need and what you’ll have to pay in premiums. Other factors that may impact your life cover quote include your age and medical history.

Generally speaking, your life cover should start as soon as your application has been approved. This means that your loved ones will receive a pay-out whether you die in the first, fifth, 15th or 25th year of your insurance, as long as the policy has not run its term.

In some instances, however, the terms and conditions of the policy state that a waiting period is in place, so always read the details carefully before signing. This can happen in the case of a death by suicide, for example, where an exclusion period of 12-24 months from the start of the policy may apply.

Compare multiple life insurance quotes to get a good idea of how much cover will cost you. It can start from as little as £5/month – possibly less than what you’re paying for your monthly Netflix subscription – but will vary depending on how much you want the policy to pay out, how long you want it to last, and other factors such as your age, medical history and lifestyle, including whether you smoke.

Don’t be tempted to lie about your circumstances to get a cheaper policy – any inaccuracies may invalidate a future claim. And remember that the best (by which we mean the cheapest) time to take out a policy is when you’re young and healthy, so don’t put it off either.

Life insurance is often an affordable way to make sure your family stays afloat financially when you pass away. But its benefit is only truly maximised if it covers everything you want it to. Comparing life insurance on price level alone could mean your loved ones lose out for the sake of a just few pence more in your pocket each month. 

A smarter way to compare life cover is to be clear in your mind exactly what type of policy you’re after, how long you need it for and how much you want it to pay out. Once you’ve found several that meet your criteria, however, choosing the cheapest life insurance from the selection can make perfect sense. Always make sure you can afford the monthly premiums before you commit.

The most common policies are known as term life insurance. These cover you for a fixed amount of time and usually fall into two categories – decreasing term life insurance and level term life insurance.

Let’s start with decreasing term, which lets you choose how long you want the policy to run for. You’ll pay a monthly premium until that date, after which the policy ends and you’ll no longer be covered. The amount paid out decreases over time (hence the name), but you usually use this type of insurance to cover a mortgage, which also goes down with time too.

A level term policy, meanwhile, promises a lump sum for loved ones that always stays the same, whether you die in the first year of the policy, or the penultimate one. As a result it’s usually a bit more expensive than decreasing term insurance.

While the policies described above will cover you for a fixed amount of time, whole of life insurance has no ‘expiry date’. Your partner or children will receive a pay out whenever you die, and consequently this cover is a costlier option. It is often used to ensure a funeral can be paid for, or as part of inheritance tax planning.

Life insurance can cover your remaining mortgage, the rent, monthly bills, or loans and credit cards so there’s no immediate financial pressure on your loved ones if you die.

But it can also cover things like school and higher education, or childcare if your death necessitates this additional cost.

Sometimes the lump sum can be used as a gift, or simply to cover the cost of your funeral so it doesn’t come out of the family savings.

Term life insurance only offers cover for a limited period of time. After your policy expires, you can’t claim any pay-out and the premiums you’ve put in won’t be returned.

An exception is return-of-premium life insurance, which will essentially refund what you’ve paid – but at the cost of much higher premiums while the policy lasts. What’s more, you usually have to hold the policy for the entire term and make all payments to get your money back.

Most people simply accept that life cover, like other types of insurance, is about weighing up the risks of not having it against the price you pay if you don’t need to claim. The peace of mind of knowing your family will be looked after if the worst happens often makes the decision easier.

When you near the end of a life insurance policy, it’s worth considering whether you still need cover. If your mortgage is paid off and your children have flown the nest, then you may not require it anymore. If you do want to continue, you could buy another policy or apply to extend your current one. But bear in mind your premiums are likely to be higher than they were for your original policy now that you’re older, and you may not meet all eligibility criteria.

Generally speaking, you’ll pay less for life cover the younger and healthier you are so, if you think you need it, it’s sensible to compare life insurance quotes as early as possible.

There are several events in life that inevitably make the question of whether to get life insurance more urgent. Buying a new home and taking out a mortgage is an obvious one. If you die before the loan is repaid, the responsibility for it will fall on your loved ones instead, so you need to think about whether they’ll be able to shoulder this without your income.

For other people, having a baby is their trigger to consider life cover. According to Child Poverty Action Group raising a child to the age of 18 in the UK in 2021 stood at £160,692 for a couple and £193,801 for a lone parent. Having a life policy in place, at least until children reach financial independence or have finished school, can give you peace of mind they’ll be provided for when you’re gone.

Even if you don’t have children, getting married or making any other long-term commitment to a partner can also be a reason to research life insurance. Whether you opt for a single or joint life insurance policy, your partner will be financially cared for on your death.

Life insurance is also relevant if you’re planning for a funeral and/or inheritance. According to the SunLife Cost of Dying Report 2022, the cost of a basic funeral in the UK was £4,056 in 2021. The lump sum your loved ones receive can be used to cover this, rather than it coming out of their own pockets. Alternatively the pay-out can make a difference for anyone looking to leave money to their children without inheritance costs. You can take out a whole-of-life insurance policy, which lasts until your death, to cover the inheritance tax bill you expect your heirs to have to pay.

Life insurance provide peace of mind that your partner or children with be financially looked after when you’re not around to do it yourself. If your dependants are still in school (or younger), or if your partner relies on your income it’s especially worth looking into. Ditto if your family is living in rented accommodation or in a house with a mortgage that you pay. If there’s any doubt they could keep up repayments without your salary, life insurance could be a solution.

Even if the long-term financial future of your family looks relatively stable without you, life insurance can be helpful to cover funeral expenses, provide an inheritance, or cover extra childcare costs if you’re not around.

Not everyone needs life cover. Some already have a policy through their employer, others may feel their partner earns enough for the family to live on. If you’re older and your children have flown the nest, it might also be unnecessary. The key question to ask yourself is whether your death would have a financial impact on the people you care about.