Life insurance calculator
- To replace your income
- To support your children until they’re 18
- To support your children through university
- To pay off your mortgage
- To pay off your credit cards and loans
- Taking into account how much cover you have already
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What is life insurance?
Life insurance, sometimes also known as life cover or life assurance, is a type of insurance that helps to protect your family should the worst happen. In the event of your death, it means that your children and/or partner will be financially looked after.
After your death, it’ll pay out money to your next of kin, and this could either be a lump sum or regular monthly payments. The amount of money they receive depends on the level of cover you buy and how long you choose to take the cover for.
Types of life insurance
There are two main types of life insurance; term life insurance and whole life insurance.
Term life insurance
Term insurance policies run for a set period of time - the ‘term’ of your policy - and are often taken out to tie up with the amount of time left to pay back a loan or a mortgage. It’ll ensure your partner or children are able to pay off the balance or meet the repayments of the loan upon your death. This type of insurance will only pay out if you die during the policy term.
The two different types of term insurance you can get are; decreasing term and level term.
Decreasing term cover means that the payout reduces in line with your mortgage balance, so the amount you’re covered for decreases as you pay your mortgage off. This is usually the cheapest type of life insurance, and works best if you have a repayment mortgage, where the amount of money you’ve borrowed is fully paid off at the end of your mortgage term.
Level term cover means that the payout is fixed for the length of your policy, paying a lump sum which doesn’t reduce like a decreasing term policy. This can be a good option if you want to ensure your dependents have money to cover more than just your mortgage payments. It can also work well for interest-only mortgages where the balance doesn’t reduce over time.
Whole of life insurance
‘Whole life’ cover means that you’ll be protected for the rest of your life, rather than just a fixed time period. That means that no matter when you die, your family will receive support - so it can be a good option if you want reassurance that they’ll be protected, without the hassle of taking out a new policy every ten or twenty years.
There are also other types of life insurance, like:
- Joint life insurance, where you and a partner are covered under one policy
- Over 50s insurance - usually whole of life insurance for those aged over 50
- Critical illness cover, which makes a lump sum payment if you contract one of a list of specified medical conditions
- Terminal illness insurance, which usually pays out if you’re diagnosed with a terminal illness
- Children’s cover, which can help if you need extra medical care for a child with a serious injury, illness, or accidental death
Do you need life insurance?
Life insurance can help if you have; dependents, a partner who relies on your income, or if you have family living in a house where you’re the sole mortgage payer.
If you buy a house as a couple, then it’s likely that you’ve been given your mortgage based on two salaries. So it’s important to think about how you’d pay your mortgage payments if one of you died - would the other person be able to manage on one income?
Life insurance can help by paying out a lump sum of cash which could pay off your mortgage or cover other bills and costs.
It can also help if you have children, by making sure they’re still provided for after you die, and covering things like school or university fees.
It may also be wise to take out life insurance if you’ve bought a house with a friend, or if you’re a landlord. If you rent out a property you own, life insurance will mean the Buy to Let mortgage could be paid off in the event of your death and the property passed on to your next of kin.
However, life insurance isn’t just for homeowners. It can also be a good idea for renters, if you have dependents. If you live with a family or partner, would they be able to afford the rent and bills if you passed away?
Do you need life insurance to cover a mortgage?
It’s not a legal requirement to have life insurance in place to get a mortgage, although some lenders will recommend that you do have it in place. We can help you to understand if you need a life insurance mortgage plan.
If you don’t have any dependents, then you probably don’t need life insurance. However, whoever inherits your property when you die would need to either sell it to clear the mortgage, or be in a position to pay it off if they wanted to keep the property.
Life insurance cost
The cost of life insurance depends on the amount of cover you need which in turn depends on your personal circumstances. It will also be affected by a number of different factors, for example:
- Your age
- Your health
- Your lifestyle
- If it’s a single or joint policy
- The amount of cover you need
- The policy length
The actual amount you’ll need will depend on things like:
- How much of your mortgage do you still have to pay off?
- If you rent, how much will your family need to pay after your death?
- Do you have any loans or credit cards that need to be paid off?
- How much do you have in other debts, like car finance?
- Does your family need future support, such as childcare costs or university fees?
- Do you have any other life cover in place, like death in service cover from your employer?
You can use our life insurance calculator to work out how much cover you might need based on these factors.
FAQs
- How do you calculate life insurance?
When working out how much life insurance cover you need, you should think about what level of cover feels right for you and how long you want it for. You can use our life insurance calculator for a quick and easy way of getting a better idea.
- At what age should you get life insurance?
There’s no set financial rule about when you need to take out life insurance, but it’s something you should consider as soon as you have dependents. Many financial experts recommend taking out a life cover policy before the age of 35, as this is when premiums begin to rise more steeply as you get older. The older you are, the more expensive it usually is to take out life insurance - but other factors also affect your policy premium, including your health, medical conditions and occupation.
- How does life insurance work?
Life insurance works in essentially the same way as home or car insurance. You pay an insurance company a premium, usually monthly, to provide cover in the unfortunate instance of your death. It’ll only pay out if you make a claim during the policy term and there’s no payout at the end. If you did die whilst the policy was in place your insurance provider would pay out a lump sum which can be used by your loved ones. This money is often used to pay off the remainder of your mortgage, but can also be used for other purposes, like paying off other debt or to cover loss of income.
- What is term life insurance?
Term life insurance simply means that your policy will cover you for a specific period or term, whether that’s ten, twenty or twenty-five years. After that period, you’ll have to take out a new policy. Whole life cover, on the other hand, means you just need to take out one policy, which will be in place until your death, provided you keep up the payments.
- What’s the difference between life insurance and life cover?
The terms life insurance, life cover and life assurance are often used interchangeably. Life cover can either refer to insurance or assurance - and there is, technically, a difference between the two. Life insurance usually has a fixed term, whereas life assurance lasts indefinitely, as long as the policyholder keeps making their monthly payments (like whole life insurance).
- Can I get insurance to cover funeral costs?
Life insurance is paid out as a lump sum, which your loved ones can spend however they see fit. The money is often used to pay off the remaining capital on a mortgage, but it can also be used in other ways - including paying for your funeral. However, you can also choose to take out separate funeral cover, which is specifically designed to cover these costs.
