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Not everyone needs life insurance (also known as life cover or life assurance). But if your children, partner or other relatives depend on your income to cover the mortgage or other living expenses, then the answer is yes – you probably do want life insurance, since it will help provide for your family in the event of your death.

What is life insurance?

  • Life insurance can pay your dependants a lump sum or regular payments if you die. 

  • Term life insurance policies run for a fixed period of time – such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the term of the policy.

  • A whole-of-life policy will pay out no matter when you die, as long as you keep up with your premium payments.

What isn’t covered by life insurance

  • Life insurance only covers death – if you can’t provide for your family because of illness or disability, you won’t be covered.

  • Most policies have some exclusions (things they don’t cover). For example, they may not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports. And if you have a serious health problem when you take out the policy, your insurance may exclude any cause of death related to that illness.

  • You can buy policies which include other types of cover such as total and permanent disability and critical illness cover.

Do you need life insurance?

  • If you have dependants – such as school age children, a partner who relies on your income or a family living in a house with a mortgage that you pay – a life insurance policy can provide for them if you die.

  • You can’t rely on the government to take care of your family – the money they would get from the state is much lower than you’d probably expect. If you want to provide for your family financially if you die, life insurance is a must.

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Life insurance – choose the right policy and cover

To get your life insurance right, you need to work out how much cover you need to protect your loved ones, and also make sure you can afford to keep paying the premiums. Here’s what you need to know to compare policies and decide on the right level of cover.

Types of life insurance

Simple level term insurance

How it works: Your policy lasts for a set number of years – it pays out if you die during that term.


Simple. Affordable for most

Best for:

Most people with dependants and those with a mortgage.

Decreasing term insurance

(also known as a mortgage protection policy) – designed to be linked to a repayment mortgage where the outstanding balance decreases over time.

How it works:

Your policy lasts for a set number of years – it pays out if you die during that term. But for each year that goes by, the potential payout decreases.


Very affordable for most


Typically covers only mortgage balance.

Best for:

Those with a repayment mortgage whose dependents can manage other expenses on their own.

Family income benefit insurance

How it works:

Like decreasing term but pays out a regular income for the remaining term.


Very affordable for most

Best for:

Best for families where dependants may suffer financially if the breadwinner dies.

Whole-of-life insurance

How it works:

Your policy covers you for the whole of your life – your dependants get a payout no matter when you die.


Pays out to your dependants as long as you keep up with premiums.


Far more expensive for shorter terms policies.

Using life insurance to cover a mortgage

If you want to use life insurance to make sure your mortgage is paid off when you die, you’ll need to make sure your level of cover matches your mortgage debt. So if it’s going to take another 22 years to pay off your mortgage, your insurance term should also be 22 years. If you want your policy to pay off other kinds of debts, make sure you’ve got enough cover.

For mortgages and other debts, you’ll want to choose one of these:

Level term insurance

Decreasing term insurance

Pays a fixed sum if you die during the term. If you have an interest-only mortgage, meaning the total debt never reduces, a level term policy can give you the cover you need.

The potential payout falls each year. This is suitable if you have a repayment mortgage since the amount of cover you need falls as you pay off your mortgage. Decreasing term insurance is cheaper than a level term policy, since you’re getting less cover overall.

Using life insurance to provide annual income for your family

While lump sums are ideal for paying off mortgages and other debts, there are some advantages to policies (called family income benefit insurance) that pay out an annual income instead:

• Possibly lower premiums for you

• Guaranteed income that can be linked to inflation if required

• You know you’ll receive a regular set amount rather than having to worry how to invest a lump sum and risks and investment return

• You don’t run the risk of spending all the money at once

You can choose the level of cover you need. If you match your current or future take-home salary for example, you can make sure your family won’t need to change their standard of living.

Choosing between single and joint life policies

Single life’ policies cover just one person. A joint life insurance policy covers two lives, usually on a ‘first death’ basis. That means when one person on the policy dies, the money is paid out and the policy ends.

Second death’cover which doesn’t pay out until both people named on the policy die – is far less common and is mainly used for Inheritance Tax planning and trust planning.

Here’s what you should consider when choosing between these options:

Budget – a joint life policy is usually more affordable than two separate single policies.

Cover needs – do you both have the same life insurance needs, or would separate policies with different levels of cover be more appropriate?

Overlap – if one of you has a work benefits package that includes ‘death in service’ benefits, you might only need one plan.

How much life insurance cover do you need?

1. Add up your debts and expenses

Do you need to make sure your cover is linked to inflation?

First add up:

• Your debts : your total mortgage and other debts, such as credit card debts or personal loans

• Expenses you wish to cover : your basic monthly outgoings and other costs, such as the cost of putting your children through school and university, or your funeral

2. Check the cover you already have

Then, see what kind of cover you already have. For example, if you’re employed, your benefits package may include a ‘death in service’ payout – a lump sum that’s a multiple of up to four times your annual salary at death.

3. Calculate the cover you need

When you have these two figures, take away the benefits or cover you already have from the total amount your dependants need – the result is the amount of life insurance cover you should take out.


Alternatively, use a common rule of thumb which is your annual income multiplied by 20.

If you just want to cover your mortgage you don’t need your policy to be inflation-linked. If you need it to maintain your dependants’ current lifestyle then it ought to be linked to inflation. Covering the cost of life insurance premiums if you can’t work, for an extra cost of about 2% of your regular insurance payments you can buy ‘waiver of premium’ cover. If you can’t work because of illness or injury this waiver will cover your premiums, but usually only after you’ve been off sick for at least six months.



Read the fine print carefully before you buy so you know exactly how this protection works. Another option is to take out a different kind of insurance policy that will cover your expenses if you become sick.

Income protection – what does a good policy look like?

‘Must have’ features

A good policy will give

‘Own occupation’ definition – the policy pays out if you are unable to do your own job.

Make sure your policy offers ‘own occupation’ cover for your job. Be aware that insurance companies group jobs into classes based on the risk of being unable to work. If you are in a class 3 or 4 occupation some insurers may offer you an alternative, less generous definition of disability. If you are in a class 5, 6 or 7 occupation there are very few providers who will offer you ‘own occupation’ cover.

Guaranteed premium rates – the premiums agreed when you start the policy will apply throughout the term of the policy and are not subject to review (unless you change the term of the policy or the benefits).

A choice between guaranteed premiums and reviewable premiums.

Establishing the benefit (financial underwriting) at the beginning of the policy – in order to establish the amount of benefit your policy will pay, you need to provide evidence of earnings and any other sources of income. Policies which allow this financial underwriting when you take out the plan give greater certainty as to what you might get back.

A choice of when the financial underwriting can be done, either when you take out the plan or when you make a claim

Waiver of premium – ensures that if you are unable to work due to sickness or disability your premiums continue to be paid on your behalf.

Waiver of premium should be included automatically. The definition of disability should be ‘own occupation’, meaning your premiums will be paid if you are unable to do your own job rather than any job. Being unable to work as a result of redundancy or unemployment is not covered (but some insurance companies will allow you to add it).

Benefit flexibility – the option to increase or decrease the amount of the benefit (the amount your policy will pay out) during the course of the policy.

You should be allowed to both increase and decrease the benefit amount as your circumstances dictate. If you increase the benefit, you may have to provide additional medical evidence.

Indexation – the facility to have your cover increase each year in line with an index (such as the retail price index) or a fixed percentage, so your benefit maintains its buying power.

You should be allowed to both increase and decrease the benefit amount as your circumstances dictate. If you increase the benefit, you may have to provide additional medical evidence.

You should be allowed to both increase and decrease the benefit amount as your circumstances dictate. If you increase the benefit, you may have to provide additional medical evidence.

An option to add indexation at any point during the contract. If you decline to have your benefits increased a certain number of times the option is usually discontinued.

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