The most popular question that policy seekers ask is, “How much should I expect to pay for £100,000 of life insurance?”
The answer is not as straight forward as we would think, considering that all insurance companies offer different policies with different options at different prices.
Before setting your sights on £100,000 of life insurance, it is important to take a number of factors into consideration and make sure you are choosing the right policy and the right amount of coverage for you and your family.
A Review of Life Insurance
Before getting too deep into the different life insurance options and quotes, it is important to go back and review what life insurance is. Life insurance is an agreement between a policy holder and an insurance company – as part of this agreement, the policy holder pays monthly premiums to the insurance company in exchange for payment to their beneficiaries when the holder passes away.
This payment is used for final expenses, outstanding debt and to cover the cost of living for surviving family members.
Types of Life Insurance Policies
There is not one single kind of life insurance – the reality is that every insurance company offers a number of different types of policies that work in many different ways. All of these policies have different requirements and carry different monthly premium payments.
Before making a final decision that £100,000 of life insurance is what you want or need, consider these policy options. Level Term Assurance is when the policy holder is asked to pay a set premium amount for a set number of years.
Should the policy holder pass away within that set number of years, commonly referred to as a term, the insurance company must pay a lump sum of cash out to the policy’s listed beneficiaries.
The lump sum payment received from a Level Term Assurance policy is most often used to pay off mortgage debts, credit card, personal debts, final expenses, and cover the family’s cost of living.
Mortgage Life Insurance works in much the same way as Level Term Assurance but instead of having set, steady premium payments and a set amount of coverage, the premiums and amount of coverage decrease throughout the life of the policy.
This means that, over time, the policy becomes less expensive to keep but also offers less in a lump sum payout. This is most often used by individuals who are concerned about making sure their mortgage balance is covered when they pass away.
Whole of Life Insurance has set premium payments and a set lump sum pay-out but the policy covers the holder for their entire life instead of just for a set amount of time. Since the coverage for this type of policy is greatly extended, the premiums for Whole of Life Insurance are often much more expensive than Level Term or Mortgage Life Insurance.
This type of policy is often chosen by individuals who have a constant need for their lump sum payment to be given to beneficiaries for various expenses. Family Home Benefit works in the same way as Level Term Assurance but, instead of beneficiaries receiving a lump sum payout upon the holder’s death, they begin receiving regular payments to supplement the policy holder’s income.
This type of policy is most often chosen by a holder who does not wish for his or her beneficiaries to receive a lump sum but rather have a continuous income stream. This is often the case when beneficiaries are young children or young adults to help with cash management.
Cost of Life Insurance Explained
The monthly premium payments or the “cost of life insurance” is determined by the insurance company using a number of different factors.
Some of the most common areas that life insurance companies look at are:
- The type of insurance you are looking for
- How much you are seeking in a lump sum payment
- The term or length of the policy
- How old and how healthy the policy holder is
- What lifestyle choices the policy holder makes
- Smoker or non-smoker
While these are the most common factors, it is important to note that all insurance companies are different and weigh factors differently.
Amount of Life Insurance Needed
The level of life insurance coverage the policyholder chooses is determined by what they want and what they need in a life insurance policy. While this choice is going to be unique to each individual, there are some questions you can ask yourself to help determine how much coverage you may need.
Think about how your final expenses will be paid, how outstanding mortgages and personal debts will be handled, and how your family will afford to live after your income is no longer available.
Additional Life Insurance Considerations
While we hit many of the most important factors that play into your choice of life insurance policies, there are some additional considerations you may want to make when making a final decision. For those policy seekers with a spouse, you may be considering a joint life insurance policy.
While having a joint policy is great from a budgeting standpoint, since there is only one premium payment, it is important to note that this type of policy will only pay out one time, when the first policyholder passes away. Having two policies is twice as expensive, but it also means there is double protection for the family.
The policy holder’s health should also be an important consideration when choosing a life insurance policy. If you have a chronic condition or number of health problems, it may be beneficial to speak with a life insurance specialist.
Claybrooke’s insurance advisors can help to partner policy seekers with medical issues with insurance companies who would be willing to work with them. This can often help you to avoid unnecessarily high premium payments based on the holder’s overall health.