New research reveals that many adults who should have this essential insurance don't.
Nearly six in ten adults don’t have life insurance, according to new research from the AA. And one in 12 of those who do admit they don’t know how much they are covered for.
More worryingly, fewer than half of adults aged 35-44 have cover, despite the high likelihood that people in this age group have both a mortgage and children under 18.
Who needs life insurance?
Life insurance is an insurance policy that pays out to your loved ones should you die within the term of the policy. Of course, it’s important to recognise that not everyone actually needs life insurance.
To establish whether life insurance is essential for you, you simply need to ask one question: if I die, will my loved ones be hurt financially? If you’re married or share a mortgage with a partner or friend, life insurance is clearly a must, or else they will be left to try to pay it off without you.
[SPOTLIGHT]Similarly, if you have children, there will be added financial pressures if you die and don’t have a life insurance policy in place.
This applies to stay-at-home parents too. If you died, your partner could have to pay for additional childcare, for example.
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How life insurance works
Life insurance comes in various shapes and sizes, but here are the main types.
Level term assurance means your loved ones will enjoy a flat payout, no matter when you die within the term of the policy. So if you have a £100,000 policy over a 40-year term, it doesn’t matter if you die in year two, 22 or 32, because the payout to your family will be exactly the same.
Decreasing term assurance means that the payout decreases with each year of the policy. So if you die in year two, they’ll get a much bigger payout than if you die in year 30, for example. This is the type of life insurance that’s most popular for people with mortgages, as it shrinks alongside your outstanding mortgage debt. It’s also cheaper than level term assurance.
Family Income Benefit works a little differently. Rather than a single, large payout, your loved ones will get a monthly or annual income from the policy. You can also ensure the payout is index-linked, which means it rises in line with inflation. Best of all it can work out far cheaper than traditional life insurance.
There are also specialist plans for the over 50s, although these can be poor value for money. For more on this, have a read of Life insurance for the over 50s.
How much does life insurance cost?
A major reason why many people don't have life insurance is because there is a perception that it’s an expensive insurance to have.
That’s not actually true though. In some instances it can come to less than £10 a month, which really isn’t much for peace of mind.
For example, a 30-year-old non-smoker taking out £100,000 of decreasing term cover over a 30-year term would pay a paltry £4.49 a month with Beagle Street.
You may already have some cover in place via your employer.
For more on how to get the right policy for you, and keep the costs to a minimum, check out How to get the best life insurance policy.
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How much do I need?
It's very important to work out how much life insurance you need to buy. You don’t want to underinsure, as you’ll leave your loved ones struggling once you’ve gone. But equally you don’t want to get too much cover as you’ll be paying more than you need to.
In its latest research, the AA says the majority of its own customers aged between 30 and 45 only have £150,000-worth of life cover.
It’s important to know how much life insurance protection you have. But it’s equally important to review it regularly as your life commitments change over time. Do you still have enough? Or do you actually have too much?
To help you work out what you need, be sure to read Life insurance: how much do you really need?
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More on family finance:
How to cut the cost of childcare