What Is Life Insurance and How Does It Work?
Wine and cheese. Batman and Robin. Life insurance and family.
Getting life insurance for your loved ones just makes sense.
It is also one of the most selfless things that you can do.
What is life insurance?
It can go by other names such as life cover, life assurance or death cover, and can often have slightly different policy details from one company to the next. But all of them will work in basically the same way.
So, in short, if you have life insurance and pass away, your beneficiaries are going to receive financial compensation. This insurance policy usually consists of monthly payments and then is paid out in a lump sum amount.
Should I get life insurance?
While life insurance may be more important for some people than others, it can be a huge help for any family if a loved one passes away, regardless of age or financial situation. Here we look at the most common reasons to get life insurance.
- You have dependent children
- Your household relies on you financially
- There are others who rely on you
- There are joint debts, such as a mortgage
Funerals can be expensive
Do any of these sound like you? Life insurance can never replace a loved one but it can give extra protection for you and your family.
How does life insurance work?
There can be quite a few variants of life insurance policies but the basic premise remains the same.
You agree to pay X amount (the premium) for an X amount of time (the term) and if you pass away then a pre-agreed amount (payout) will be paid to your beneficiaries.
Let’s take a closer look at these important terms...
Premium – This is the amount you pay (usually monthly) into your life insurance policy. Generally, the higher this amount, the bigger payout you’ll have.
Term – There are certain policies that will carry on indefinitely and there are others that will be paid over a specific number of years. Term policies usually have a cheaper premium while still having a high payout. These two types can have their own variants.
Payout – This payout can be used for something specific like a mortgage, paid in a lump sum or given over a period of time.
Beneficiaries - Those who receive the benefits from your life insurance or will.
Do life insurance policies cover all deaths?
This can depend on the type of policy you take out, but most of them do. However, depending on the policy, it may not cover suicide if it’s within the first 12-24 months of cover. But at Bequest, we don't think that's right, so we've removed the clause.
The biggest reason that life insurance doesn’t payout is due to something that hasn’t been disclosed.
For example, if you have diabetes but have hidden it, and this directly results in your cause of death, then this could void the policy. When taking out life insurance, it’s important to be open and honest.
Will I be able to get life insurance?
Yes. And when going through your policy, an underwriter will assess your situation, and take many factors into consideration before deciding on your premium.
If you have high-risk factors such as an existing illness, advanced age, a poor medical history, or dangerous hobbies (such as skydiving 🪂 or free-climbing 🧗♀️), then your premium may be higher. You’ll still be able to get life insurance but your premium would be higher than someone who is healthy or does not participate in these activities.
When should I get life insurance?
NOW. It's super important to start today. You can never be too prepared, but you can also save quite a bit of money in the long run.
With policies you can amend, you change your policy as life changes. You could start off with a small premium, before increasing when you get more financial responsibilities, such as a mortgage.
It’s never too early to protect your family and loved ones.
We are very close to starting our life insurance cover service, and would love for you to be one of the first!
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