What is life cover insurance and how can it benefit you? This financial product enables you to protect your loved ones financially if you die or become critically ill, providing them with support that can pay off your mortgage, replace your income each month or pay for your funeral. There are several considerations to make when choosing life cover insurance, from how much cover you need and the size of the payout to what you want your monthly premium to be.
In our life cover insurance guide, we answer many of the common questions surrounding this type of insurance policy, from ‘how much life cover do I need?’ to the reasons why you may need life cover and what’s included.
COVID-19 may cause some delays to your application but that’s not to say that insurance providers won’t accept your application. In the first section of our life cover insurance guide, we highlight how the pandemic may impact your insurance application.
What is life cover and why do you need it? There are several advantages to taking out a policy that protects your loved ones from being responsible for your finances when you pass away. We outline why you should consider taking out a life insurance policy.
From mortgage repayments to other loans and debts, there are several factors that will influence how much life cover you’ll need. We explain the key considerations you should make when deciding how much cover to take out.
Insurance providers offer different inclusions with life cover policies, but there are some common inclusions that you’ll find in most policies. In this section of our guide, we explain what is most likely to be covered by a life cover policy.
Mortgage life insurance cover can help to prevent your family struggling to make monthly repayments if you pass away. It’s one of the most common reasons that people take out life cover – we explain the benefits of taking out an insurance policy for your mortgage in this section of the guide.
There are different types of life cover to choose from, including level and decreasing life insurance. In this section of our guide, we explain the differences between the two and how to choose the right type of cover for your needs.
Life insurance premiums can vary from provider to provider, as they’re based on your personal circumstances. However, there are some factors that play into the overall figure, which we explain in this final section of our life cover guide.
Getting Life Cover Insurance during Coronavirus
Most existing life insurance policies will pay out for coronavirus-related deaths, on the condition that you complete your application honestly. It’s not currently a typical exclusion, so you’re likely to be covered for this disease with most providers.
Some insurance providers, however, have started to introduce exclusions as the pandemic has developed, so it’s important that you check the policy terms and conditions carefully. There may be specific questions related to COVID-19 on your application for new policies, so your application could be delayed if you’re awaiting results for coronavirus testing.
Some of the questions you might encounter are:
- Have you tested positive for COVID-19?
- Are you self-isolating?
- Are you experiencing symptoms of COVID-19?
- Have you been in contact with someone who has been diagnosed with, or are awaiting results for, coronavirus?
1: Why do I need Life Cover Insurance?
No-one likes to think about what will happen after they pass away, which leads many to wonder ‘do I need life cover?’. But this type of insurance policy can help minimise the financial burden placed on your loved ones in the event of your death. While life insurance can’t ease the emotional stress of losing someone close, it can help with the financial practicalities.
If you pass away or you’re diagnosed with a terminal illness with a life expectancy of less than 12 months, during the period of your policy, your life insurance provider could pay out a cash sum which your loved ones can put towards expenses during such a difficult time.
One of the most common reasons people choose to take out a life insurance policy is when they buy a property. If you die before the mortgage is repaid, the responsibility to make these payments falls to someone close to you. Life insurance removes the risk of your loved ones being responsible for your mortgage and other debts, ensuring they can meet the financial commitments when you’re gone.
Those most in need of life cover include:
- People with dependents
- If you have a partner who relies on your income
- Those who have a family living in the property that you pay a mortgage for
2: How much Life Cover will you need?
‘How much life cover should I get?’ is a common question where insurance is concerned, but it’s a very personal decision and depends on several key factors, such as how much your dependents rely on your income and what your budget looks like in terms of affordability.
When considering ‘how much life cover will I need?’, there are a few things to think about that can influence your decision:
- Will the amount cover your mortgage? For most people, a mortgage is the largest loan they have, so you need to consider how your family will afford the repayments if you pass away. Mortgage life insurance policies can be beneficial for this purpose, usually running for the term of the mortgage either providing level term or decreasing term cover.
- Can it cover other loans and debts? Your mortgage might be the largest debt you have, but it won’t necessarily be the only one. If you owe money on credit cards or loans, these will need to be paid when you die.
- Will the amount cover family expenses? Are there outgoings that your loved ones will struggle to pay for if you’re not around, such as utility bills or food expenses?
- You may want to multiply your salary by the number of years you’d need to keep earning to determine the figure, enabling your dependents to continue their current lifestyle if you die.
- Do you need critical illness cover? This will be added to your life insurance policy and ensures that your family will be protected financially if you suffer from a serious illness and can’t work.
- Would your policy cover funeral costs? Funerals can be a costly expense for your family to pay for, so you may wish to factor in this extra cost when determining how much life cover to take out.
Most people take out between £100,000 and £200,000 in cover, but this figure will vary depending on your specific circumstances and the above points.
3: What’s included in a Life Cover Insurance policy?
What does life cover insurance cover? Different policies will have specific inclusions and exclusions, and there are often add-ons that you can tailor your policy with. When it comes to what’s included in life insurance cover, the most common inclusions are:
- Death – You will be covered if you die before your policy comes to an end
- Terminal illness – If you’re diagnosed with a terminal illness and are expected to die within 12 months, the policy will pay out at no additional cost
- Critical illness – Many policies include critical illness cover, or you can add this to your policy, to cover you if you’re diagnosed with a specified critical illness
4: Getting Life Cover Insurance for a mortgage
A common query regarding life insurance is ‘do I need life cover for a mortgage?’. A mortgage is a big financial commitment and it can be difficult for your loved ones to find the money for the repayments if they rely on your income.
So, do you need life cover for a mortgage? Without mortgage life insurance cover, your dependents may not be able to make ends meet, which may result in them having to sell the family home. By adding critical illness cover as an additional premium, you can also ensure that the mortgage repayments will be paid if you’re unable to work due to illness during the length of the policy.
5: What’s the difference between level and decreasing Life Cover?
Choosing the right level life cover insurance can be a daunting prospect, especially with confusing terms to navigate. How do you know whether you need level or decreasing life cover? Both have their benefits and considerations, depending on your financial situation.
Understanding the difference between level and decreasing life cover is critical to ensuring you can provide the right amount of protection for your family.
Level life insurance is designed to financially protect your family if you die during the term of the policy. It can help with paying off the mortgage, helping with ongoing bills, paying for your funeral and ensuring that your family retains a comfortable standard of living. There’s no payout if you die outside of the term though.
With level term insurance:
- Payments are fixed and won’t change unless you change the policy
- Your payout will remain the same for the duration of the term, unless you change the policy
- It’s beneficial for interest-only mortgages, other debts and for protecting your family
Decreasing life cover insurance is similar to level life cover, but there’s a significant difference. With this type of cover, the amount of insurance reduces over time in line with your mortgage decreases. It’s typically taken out to cover a specific debt, such as a repayment mortgage. So, as your debt decreases, so does the amount of insurance cover you have.
In the event of your death, the insurance will ensure that your mortgage is settled and the amount paid reflects the amount of time that has passed since you took out the policy.
With this type of policy:
- Payments stay the same throughout the length of the term, unless you change the policy
- The length of the policy needs to be long enough to cover the duration of your mortgage and any interest applied to the figure
6: How much does Life Cover Insurance cost?
Life insurance is beneficial for a number of reasons, but how much does life cover cost? It can be difficult to determine how much life cover is for each person, as it’s based on personal circumstances and requirements, such as your mortgage amount, cost of living and the size of the payout you’d need. The lower the payout, the lower your monthly premiums will be.
In order to see how much your life insurance may be, you need to take into account several factors, including:
- How old you are
- Your health and lifestyle, such as whether you smoke
- The type of policy you take out
- How much cover you take out
- The length of the policy
It can be helpful to speak to an insurance professional to help you determine how much cover you may need and what your monthly insurance costs might be.
Find out more
Town & Country Mortgage Services are able to help ensure you have suitable cover for your mortgage in the event that you pass away during the term of your mortgage. Our trained team have a wealth of experience in this field and we can assess your circumstances to help you find the right cover for your needs. Get in touch with us today for advice on life insurance cover for your mortgage.