What is life insurance?
You probably know the basics: you pay monthly premiums to an insurance company, and they pay your beneficiaries a lump sum when you die, to cover mortgage payments, or make up the loss of your income.
Who needs it?
If your employee benefits include “death in service” you will be covered for a multiple of your salary and might not need additional life insurance. But this cover will usually end if you leave that employer – which might be the point at which you need to arrange cover for yourself.
If you don’t have any dependents (young children, a partner you share a mortgage and living expenses with, or elderly parents) and you’ve got enough put by to pay your funeral expenses, you may not need life insurance.
But planning for your own death is a difficult thing to think about, so many of us just… don’t.
An easier way to approach the issue may be to think of it as taking care of your family in the future, and saving them having money worries at a time when they’ll be grieving.
Useful questions to consider
- How much can you afford?
- How many people depend on your earnings?
- How much money would your dependents need for living expenses?
- How long before your dependents could be self-sufficient?
- Will there be a point when your dependents’ living expenses will be significantly reduced?
You want to be paying for enough cover for your family’s needs – but not for more than is needed.
If the most significant expense is children who will be independent in 15 years, or a mortgage that will be paid off in 10, that may be as much cover as you’ll want.
It’s nice to think of your survivors having a hefty lump sum that will be more than sufficient for their needs. But the more generous the payout, the more expensive the premiums will be. You could be hoping to buy future ease at the expensive of everyday comforts today (and perhaps some enjoyable family holidays which will build memories together).
What kind of insurance cover do you need?
There are two main types of life insurance:
- Term life insurance runs for a fixed period of time such as 5, 10 or 25 years, which could cover the time until your children are finished in education and have left home, or your mortgage is paid off.
A term policy only pays out if you die during the policy. There’s no lump sum payable at the end of the policy term. - A whole-of-life policy will pay out no matter when you die, as long as you keep up with your premium payments. But it’s more expensive.
But what if you have a series illness, or a major accident that prevents you from working? To be brutal, life insurance is actually “death insurance”: it only pays out if you die, or in some cases if you have a terminal diagnosis.
If you’re thinking you would be covered in case of a debilitating accident or illness, you may be wanting critical illness insurance.
If you’re concerned that you may be made redundant or unable to get work, and your chief concern is, say, keeping up with mortgage payments, you might be looking for income protection insurance, or mortgage protection, or a short-term protection insurance.
What does Vitality offer?
Life insurance – both term life insurance and whole of life insurance
Serious illness insurance – pays out on diagnosis of a wider range of serious illnesses than many other Critical Illness policies
Mortgage protection – helps to pay your mortgage if you get ill or die before your mortgage is paid off
Income protection – pays a monthly income if you get sick or injured and you’re unable to work
You’ll want to compare the costs and details of Vitality’s cover with other companies to be sure you’re getting cover for what you expected.
Does their style of plan suit you?
Other life insurance companies have been catching up with Vitality on the range of conditions covered by their critical illness plans, and are also paying out a greater percentage of their cover as a one-off payment.
Your decision about which company to go with may come to down to some of reasons that have been holding you back from organising life insurance until now.
- Vitality are aiming to identify life insurance with healthy life choices (rather than fear of illness), and they’ve set themselves up to reward the new style of health-conscious consumer they’ve targeted.
- They offer discounts on premiums with their add-on Wellness Optimiser and Vitality Optmiser plans, and the ability to reduce future premium payments with Bronze, Silver, Gold or Platinum status, which you “earn” by actively managing your health, getting fitter, and having regular health checks.
- The additional perks are very on-trend: an Apple watch, an Alexa-enabled Echo Dot speaker and Amazon Smart Plug, discounts on “healthy food” at Ocado and David Lloyd membership – as well as weekly cinema tickets and Starbucks coffees.
- If you want to access the big-brand rewards, your Serious Illness Cover premiums need to be more than £30 a month.
- But you are offered the chance to work towards reducing your premiums. For high-achiever gym junkies who love a challenge, this could be the kind of incentive that works for you.
- But if you live in a rural area beyond the reach of Starbucks and gym membership, the benefits may not work for you.