What exactly is life insurance?

It might seem a strange idea to commit to regularly paying for something you hope you will never need, and which if you do, you can be certain you will never enjoy the benefit of.

That is what life insurance does, of course.

But while it might never do us any good, it could provide financial security for our loved ones if we were no longer there to provide it ourselves. Most people want to give that level of protection to their partners and families and feel peace of mind worth the cost.

But what are the costs, how does it work, and what are the options?

Life Insurance made simple

At its core, life insurance is a contract between you and an insurance provider. You pay regular monthly premiums, and in return, the insurer promises to provide a lump sum payment (known as the death benefit) to your designated beneficiaries upon your death. 

This means your loved ones can be financially supported even after you’re no longer there to support them yourself. Whether it’s your parents, spouse, children, or other dependents, the death benefit can help pay off all the outstanding commitments, such as credit card bills and even a mortgage, and offer a regular income to help replace the money you brought in each month.

It means that those you leave behind could be financially secure and keep their home, rather than being saddled with your debts. 

Life insurance or Life assurance?

Life insurance and life assurance are slightly different. Both pay out when you die. But life insurance, also known as term insurance, has an end date. You might want cover for 20 or 30 years or more, perhaps during your working life, but decide you have financial security from your property and pension as you retire. Life assurance has no end date. As long as you keep paying the premiums, it will pay out when you eventually die, whatever your age. It can be used to protect your legacy from inheritance tax. 

So what does it cost?

Actual premiums can vary widely based on individual circumstances.

If you’re a smoker or engage in high-risk activities, your premium might be higher. This is because such habits increase the likelihood of health complications that could lead to an early death. Your health also plays a significant role in determining your premium. Insurance companies assess your health through medical exams and inquiries into your medical history. Generally, healthier individuals receive lower premiums.

Keeping the costs down

The triggers for many people to get life insurance protection are finding a partner or buying a property. Both events can make cover essential.

But both will come at a time in your life when money is probably at its shortest, and this is why keeping the costs down is vital – and there are two ways to do it.

  • The first is to start cover as young as possible. The younger you are when you take out a policy, the less it can cost, and the premiums can be fixed. Starting a few years early can mean savings on premiums for life.
  • The second is to shop around. There are many insurance companies, and it can be difficult to find the one that offers both the cover you need at a competitive price.

That is where a call to us at Continuum can be vital. We are independent, so we can take a professional look at the policies from all the providers, and help you find the one that is suitable  for you. 

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate estate planning, wills, tax and trust advice.

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