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What is life insurance?
Life insurance is a type of insurance contract which pays out a lump sum to your dependants should you pass away during the term of the contract. The cost of a policy is determined by a number of factors including your age, health and lifestyle.
Why should I take out life insurance?
Life insurance is a vital part of financial planning for anyone who has dependants.
By ‘dependants’, we mean anyone whose circumstances and material wellbeing would be affected by your death – for example, your partner, your children or anyone else who is financially reliant on you.
Thinking about your death and its inevitable impact on your family’s circumstances is difficult – and many people simply shy away from the topic. But not doing anything could put loved ones at financial risk. That’s why it’s important to confront the issue and take out life insurance.
How does life insurance work?
In most cases, the most effective form of life insurance is called ‘term’ insurance.
This type of policy pays out an agreed amount – the ‘sum insured’ – either as a lump sum or as a regular income, if you die within a specified period – known as the ‘term’.
You choose the size of the pay-out and the length of the term. For example, you may decide to have cover in place until your children are grown up and have left home.
These decisions aren’t always straightforward, which is why we’re here to help. Our dedicated page on how to work out the amount of life insurance cover you need will help you arrive at a sum insured that reflects your family situation.
What’s the average cost of life insurance and what affects the price?
Life insurance policies can start from just £5 a month.
However, the cost will vary depending on factors such as your age, health, occupation, whether you smoke, length of the term and whether you choose add-ons such as critical illness cover.
MoneySuperMarket found that smokers on average pay £18 more a month for life insurance compared to non-smokers*. And adding critical illness cover, which pays out on the diagnosis of one of a list of serious medical conditions, typically increases your payments by almost £28 per month**.
An alternative to straightforward term insurance, where the amount of cover stays the same for a set number of years, is what’s known as ‘decreasing’ term insurance, where the amount of cover reduces over the years (usually in line with a mortgage). This means decreasing term insurance costs less, all other things being equal.
Why it pays to buy life insurance when you are younger
As a rule of thumb, the earlier you take out life insurance, the cheaper your policy will be.
If you’re in your 20s life insurance is unlikely to be a priority. But MoneySuperMarket research shows that taking out a policy in your 20s can be as much as two times cheaper than taking out cover in your 40s***.
The reason for this is simple – insurers consider you less likely to make a claim the younger you are.
The chart below shows the average monthly premium for life insurance depending on the age of the policyholder. But keep in mind each insurer will differ in how much emphasis they give to factors such as your occupation, medical history and lifestyle, so your personal quote is likely to be different.
Whether you’re buying your first home, getting married or thinking about having children, taking out life insurance as a young adult can be a cost-effective way to plan for your financial future.
Are there life insurance policies which come with a gift?
You can compare a wide range of life insurance policies on our comparison tables. And if you take out life cover through MoneySuperMarket, you will receive a £125 voucher from Argos, M S or Next.
Your voucher of choice is redeemable within 40 days of your third life insurance payment. T Cs apply. You can find out more here.
Get a £125 voucher when you take out Life Cover through MoneySuperMarket
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