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What is life insurance, how does it work and do you need it when you become a parent?

Life insurance can be one of the most important things you ever buy - Here is how to works and why you might need it

LIFE INSURANCE can offer you peace mind knowing that your family will be taken care of when you die.

But what is life insurance and why should you think about getting it if you become a parent?

 Life insurance can be one of the most important things you ever buy - so make sure you know how it works

The simplest version of life insurance is a lump sum which is paid out to your family should the worst happen to you or your partner.

There are several types of life insurance that can be used to protect different things like your mortgage or your dependants.

Not everyone needs life insurance, but if your children, relatives or partner depend on your income you should probably consider getting a policy.

Here is everything you need to know about life insurance and why you might need it.

What is life insurance?

Life insurance allows you to make sure that if you die money will be left behind to take care of your family.

This money comes in several forms and can be made in regular payments or in lump sumps.

The amount of money that is paid out depends on the life insurance policy that you buy.

You can decided how it will be paid out and whether it will cover specific payments like rent or a mortgage.

You generally pay life insurance in monthly payments called premiums.

Life insurance can be quite good value, with some policies charging you small change everyday to make sure your family is covered.

Compare The Market reckon that you can get cover starting from £3.54 a month, or just under 12p a day.

The price of your life insurance premiums are dependant on:

  • How old you are.
  • Your health - being a non-smoker can make your life insurance a lot cheaper.
  • Your lifestyle.
  • How long you want your policy to last for.

If you do have a pre-exisitng medical condition it can be hard to find life insurance or you can end up paying higher premiums.

You can contact The Insurance Surgery, a specialist insurer that helps people with pre-existing conditions find life insurance.

Of you can try contacting the relevant charity for your condition, for instance Cancer Research UK offer information on how people with Cancer can get insurance.

In general your life insurance should end up amounting about to ten times the breadwinners yearly salary.

This isn't set in stone and you should only save what you can afford, but this will make sure that you have enough money for ten years after your partner passes.

Who needs life insurance?

LIFE insurance isn't for everyone, so make sure you really need it before you buy it

Life insurance is all about leaving money behind for other people, so if you don't want to leave any money behind then life insurance isn't for you.

For instance single people or people without children probably won't need life insurance unless they want to pay out to a family member.

If you do have a partner or children You should probably consider wheter it would be a struggle to pay for basic costs like bills and rent if you weren't around.

If the answer is yes you should probably consider getting life insurance, if not then it might not be worthwhile.

If you or your partner claim any income based benefits you may want to consider whether getting a life insurance payment could affect the benefits you receive.

Roshani Hewa, head of protection and health at the Association of British Insurers, said: “If you have children or other dependents, it’s important to think about their financial security when you pass away. "


"If you’re considering this type of insurance, it’s important that you get independent financial advice on your needs and options.”

What are the different types of life insurance policy?

There are several different types of life insurance policy:

A whole life policy: This is exactly what it sounds like, this type of life insurance will cover you for your entire life and then pay out when you die. You are guaranteed a pay out when you die as long as you pay all your monthly payments.

These kind of policies are often used to mitigate any inheritance after you die, so your policy will cover the cost of the inheritance tax you leave behind.

Term life insurance policy: This policy will only cover you for a set period of time, this may be anything from 10 to 25 years.

These policies will only pay out if you die within a set time period and won't pay you anything if you are still alive by the time your policy ends.

So if you are considering one of these policies it is important to have a serious think about how long you expect to be alive for.

Mortgage decreasing term insurance: Similar to a term life insurance policy this form of life insurance pays out to cover your mortgage if you die before your policy ends.

This is called mortgage decreasing as your mortgage will decrease in size over time as you pay it off, so your insurer will have to pay you a smaller amount as time goes om - which can make this type of policy cheaper than others.

 If you are not completely honest about your medical history you could lose out on your life insurance payment

What should I be watchful for?

Life insurance policies can also have their pitfalls:

Low start policies: These policies seem like a great deal at first, but be warned that they will increase in price over time.

So what may seem like a very cheap policy at first can become a lot more expensive the longer your insurance goes on for.

Reviewable policies: If a quote seems incredibly cheap then check it's terms and conditions for a reviewable policy. These policies only guaranty the rate advertised for the first three months or so and will then start putting the rate up, which can make them unaffordable later in life.

Be honest: If you aren't completely about your medical history when you apply for life insurance you can be invalidated and you might not receive a pay out.
