Introduction: What is life insurance?

Life insurance is designed to financially protect the future of selected beneficiaries, by paying out a cash sum when you die or if you are unable to provide for them because of illness or disability.It is a contract that gives an individual – the policy holder – security and peace of mind in knowing that their loved ones will not have financial problems once he or she is no longer there to take care of their needs.

Some important vocabulary to keep in mind

Policy Holder: The policy holder is the person who pays into the insurance fund, and upon whose death the money will be paid out.

Beneficiaries: Beneficiaries are the people who are given the payout upon the death of the policyholder.

Insurer: The insurer is the insurance company who takes the policy holder’s money, and upon the policy holder’s death, pays the money to the beneficiaries.

Premiums: Premiums are the amount of money you pay each month for your life insurance.

Reasons why you might opt for life insurance cover

This is a list of some of the most common reason’s that someone might take out life insurance cover.

  • To support the family in the event of the breadwinner’s death.
  • To support you in case of a critical illness.
  • For mortgage payments.
  • To manage the funeral and other expenses.

The different types of life insurance

There is a variety of life insurance policies that you can choose from depending on your needs and financial situation. The amount you pay for life insurance depends on the kind of life insurance you want, how long it will last and your risk of dying. If you are older and have a known condition, your life insurance policy will cost much more than a young, seemingly healthy adult in their twenties. The following are types of life insurance that you can choose from.

Term life insurance

This is the cheapest and most straightforward type of life insurance. It is just insurance that pays your beneficiary in case of your death. When you buy term insurance, you only purchase protection. The premium paid provides coverage for a specified term or number of years.

There are no living benefits from term insurance because no cash reserve is built up. There is usually no cash-surrender value, and no capital is formed before the demise of the insured. Basically, you can’t take any money from the insurer while you are alive.

There are three important components of the term insurance policy. 

  • The premium or cost to the insured.
  • The face value or the amount of the benefit to be paid on the death of the insured.
  • The term or length of the coverage.

As if to keep things as clear and straightforward as possible, policies are often sold with various combinations of these components.

Whole life

Whole life gives your family permanent protection, as well as builds cash value, which the insurance company manages. It provides a death benefit, and offers a tax-deferred accumulation of money, in a low-risk account.

You pay a fixed premium as long as you pay the policy. You can receive dividends from the accumulated money, or use it to reduce your payments in case of an emergency.

The main advantages of whole life insurance are; guaranteed death benefits and cash values, fixed and known annual premiums. Also, you can borrow from the cash reserve without paying taxes, as it is considered as a loan provided the required stipulation is met. The death benefit is reduced by the according to the amount that is borrowed.

The primary disadvantages of whole life are that the premium is inflexible and the internal rates of return may not be as competitive as other alternatives. In some cases, paying higher premiums can increase the death benefit.

Who needs life insurance?

Guidelines for knowing if you need a life insurance policy Is someone financially dependent on you? If you have someone that depends on you financially, then you need life insurance. It will provide them with financial support after you are gone.

Are You Retired?

Even though you are retired, you still may require a policy. After you are gone, there may be substantial estate taxes that your loved ones will have to pay and a policy would be able to take the financial burden off your family. Also, the funeral expense can be paid with the policy’s proceeds.

Are you married?

If you are married and you are a source of income for your spouse, then you need a policy. Many families cannot survive on one income, so it is necessary to help your spouse with living expenses.

Do you have children?

If you have children, then you will want to have a policy in place. It can be used to take care of your children, including paying for college expenses. 

Do you have a mortgage?

If you have a mortgage you may want to protect your family or partner from potential taxes and the monthly payments of your mortgage. 

What does life insurance cover?

If you have life insurance, you need to know exactly what the contract covers and what it does not.

Buying a financial service like life insurance is the best way to invest in the future and ensure that your relatives have the funds they need to pay off your debts and to live comfortably after you are gone.

In order to give your family the financial stability you intend to, it is important to understand what type of coverage you are investing in and what might be excluded from cover. You need to know when you are trying to determine what your life insurance contract will cover.

Knowing what causes of death are excluded

The premise of life insurance might seem very simple, and the policy will pay your beneficiaries a specified death benefit when you die.

While most life insurance contracts cover most causes of death, specific causes are excluded. Knowing what causes of death are not covered under your contract is very important.

Different policies come with different types of exclusions. Here is a list of the most common exclusions.

  • If you buy an accidental death policy, death because of a disease or illness may not be covered.
  • If your insurance company finds out you have a medical condition, they may state that death due to the condition will be excluded. Suicide is also typically excluded for up to 2 years from the date of the policy’s inception.
  • Some companies may only provide the families of someone who committed suicide with a return of the premiums paid on the policy.
  • If the insured dies in a terrorist attack, in war, or while performing extreme stunts, the death may not be covered.

 Important: Ensure you review the terms and conditions of your contract in depth to verify exactly what type of coverage you have. If you believe that you are a riskier insured, you might need to purchase speciality coverage that is not as limited as the policy you currently have.

Length of policy

Not all policies provide you with permanent coverage for life. In fact, the most common policies purchased only provide coverage for a limited period of time. 

If you have term life insurance, you are covered for a set time, typically between 1 and 40 years. Once the term is over, the coverage expires.

A permanent insurance plan, like whole life, will cover you for the remainder of your life as long as you pay your premiums. Make sure you know how long your policy will remain active or your coverage might expire without you even knowing.

How much cover do I need?

A permanent insurance plan, like whole life, will cover you for the remainder of your life as long as you pay your premiums. Make sure you know how long your policy will remain active or your coverage might expire without you even knowing.

Do you have special riders

If you have riders built into your policy, you may have more coverage than you even know about. There are a number of special riders you can build into your policy for an added cost.

These riders might cover your spouse, guarantee renewability, protect your children, or offer you payments if you are permanently disabled. See if there are special riders built into the policy and understand how you can benefit from them.

How much does life insurance cost?

The cost of insuring yourself varies from person to person and each of their circumstances. Understanding how much does it cost you will have these types of factors to be considered.

Your age and gender will always be a huge factor as well as your occupation. The older you are, the higher the cost of insuring yourself. If you are a smoker for the last twelve months and wanted to get insured, you may find your premiums to be higher.

Your occupation can affect it too if your workplace environment is considered high risk.

On average, if you are aged between 35 to 40, you will pay about £20.15 per month for a 20-year term life insurance policy with a 384,605 death benefit.

By comparison, if you are 30-year-old will pay £76.26 per month for a whole life insurance policy which is paid up at age 99.

 The life insurance application will ask for some basic information including.

  • Name
  • Contact info
  • Height
  • Weight
  • Date of birth 
  • Habits and lifestyle (smoking habits)
  • Medical history

Tell the truth! When getting life insurance quotes, it’s important.

The information you provide helps the insurance company calculate the policy premiums

If an insurer discovers you have lied on your application about necessary information, or your  lifestyle/habits, it could increase your premium, cancel your policy, or the deny nay claim you might make.

Once examined, an insurance underwriter will review your application and medical exam results (if required) and either deny or approve your request to purchase. If approved they will then move forward with issuing the policy or coverage.

If the policy or coverage is issued, you may be assessed an additional risk-based premium, depending on your health status. 

How do I save money on life insurance?

Look to your needs and the needs of your family members in order to save money, life insurance online calculators are helpful in helping you know how much you need to cover until the retirement of your spouse or until your children finish their college education.

From 20 years of age to around 50, you need to go for the term-life, as this is the simplest way to avail of a mutual savings life insurance. For people who are over the age of 60, cash-value life insurance is the better way.

Get quotes from online sources

Many online sites can give you quotes. These sites can help you with the quotes that you need. Just be prepared to undergo a detailed application process

Get professional advice on what to buy

You can seek the advice of a good financial planner, or you can buy directly from the insurance company. You can also buy through an insurance agent or buy through a commission-based financial planner.

Study and review

In order to know how much money you will be saving, you need to do your homework. Set aside time to research and seek expert help.

Negotiate premium and compare rates

Majority of those who purchase life insurance policies do not negotiate on the premiums. However, most life insurance providers provide room for discounts and negotiations. 

How do my beneficiaries get paid after the policyholder dies?

Interest income option

It is dangerous to give a huge amount of money to someone who is not used to it which may not be your intentions. Through this option, the beneficially gets interested earned at intervals. The principals remain constant until you decide to take it.

One lump sum

The beneficiaries can get the insurance paid in one lump sum. This type of life insurance payment is not recommended because it better to generate income from the money instead of getting it in a lump sum.

Fixed period income

This type of payment is the same as a fixed account and you are paid after a specified duration. The policyholder, for example, can say pay this money to them in equal amounts over the next 15 years”.

Fixed amount income option

The beneficial can get the money as a fixed income. The policyholder can decide that this is how the beneficiary will be paid. She/ he can state “payout x per month to my family, named person or persons until the proceeds exhaust”.

Life income option

The policyholder can decide their beneficiaries to be paid in life income form. This is effective when dealing with large amounts of money.


Remember, life insurance cover gives you peace of mind as you do not know what is around the corner. Illness and accident and crop up at any time and no one lives forever, so the provision of life cover can make good sense.

Life insurance is definitely a unique product. It is one of the few products or services people buy that delivers benefits at the point of the payee’s death. You should remember the benefits of peace of mind tied to the covered person’s life.

Knowing that one’s family is safe no matter what can be a very satisfying feeling. It is important that individuals explore life cover options early in life, especially when they have families to protect. Some people fail to consider life insurance cover until it is too late. This causes even greater suffering for those left behind.