01 December 2014

Life insurance: what to think about

What would happen to your family if you were no longer around? Would they have enough to live on? No-one likes to think about dying, but knowing that your loved ones are taken care of financially can be a huge weight off your mind. If you’re thinking about taking out life insurance, here are a few of the basics you might want to consider.

What is life insurance?

Life insurance – sometimes referred to as life assurance – is designed to pay your dependants a lump sum or regular payments in the event of your death. There are two main types – whole of life and term assurance.

  • A whole of life policy guarantees to pay out regardless of when you die, as long as you keep up with your premium payments.
  • A term insurance policy covers a fixed period of time, typically 10 or 25 years. It usually only pays out if you die during the term of the policy. Premiums are often significantly cheaper than whole of life policies. Term insurance policies are split into a further two categories – level and decreasing term.

With level term insurance, the amount of cover remains the same throughout the duration of the policy, and a lump sum can be paid if you die within the fixed term.
Decreasing term insurance can also pay out a lump sum, but this will normally reduce by an agreed amount every year until it reaches zero by the end of the term.

Take a look at Nationwide's life insurance range to see if we can help.

Why take out life insurance?

Even if you don’t have life insurance now, there may come a time when a change to your circumstances cause you to reassess your options, including: 

  • Getting married

  • Starting a family

  • Buying a house or moving home

  • Changing jobs or becoming the main breadwinner

If you have dependants, such as children under 18, a partner who relies on your income or family members living in a home where you pay the mortgage, life insurance could give them added security if you die. 
According to figures published in May 2014 by the Association of British Insurers, 270 families in the UK were helped by protection insurance every day last year, with the average pay-out on a term insurance policy standing at £51,500.

How much cover do I need?

It’s not always easy to work out how much cover you need as it’s entirely dependent on your individual circumstances. Ideally it should be enough for your dependants to maintain their standard of living following your death. You should take into account things like mortgage, salary, debts, childcare costs and education expenses. You can use Nationwide’s life insurance cover calculator to work out how much you might need.

How much will it cost me?

Premiums are determined by a number of factors. The cost of your cover will be affected by your age, gender, occupation, existing health conditions, lifestyle, weight and medical history. 
Be honest when applying for cover, because your policy may be invalid if you neglect to tell your insurer important details.

How else can I protect my family?

When you’re making plans for your loved ones’ future, it’s also important to think about how you would manage to pay your mortgage and other bills if you were unable to work because of illness or injury.
If you don’t have a large savings pot or an employee benefits package to fall back on, income protection or critical illness may be able to help if disaster struck.

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