Life Insurance: The Good, the Bad and the Ugly

Thursday, 17 November 2016
Life insurance: The Good, the Bad and the Ugly.

Let’s start with the ugly aspect of any life insurance policy, the fact that in the end, it does require you to die.

So why isn’t it called death insurance? Because life insurance, at the heart of it, is meant to help your loved ones be able to continue with their lives after you’re gone, and to make sure they can cover their living costs after the loss of your contributions (and free from any inherited debts). Besides, some life insurance providers now give you the option of getting some of your money back if you manage not to die for a certain term (see for instance life insurance with endowment savings), so that death is no longer the only way out.

The good

There are different types of life insurance, each with their own benefits and weaknesses. Term life insurance covers a set term, and can decrease as you pay off your mortgage, for instance. Whole of life insurance covers you for the rest of your life, however long that may be. Convertible term insurance refers to a term life policy that can be turned into a whole of life policy without requiring (new) medical screening.

The positives of having any of these types of life insurance can extend beyond merely looking after your family once you’re gone, with more life insurance companies now offering benefits that can be very useful while you’re still alive.

A popular extra is healthcare help, with providers offering anything from free access to a healthcare hotline run by medical professionals, to optical and dental grants. Some even offer GP consultations with doctors especially screened by them, if you would like an alternative to your own GP’s opinion.

While it is possible to get critical illness cover or income protection separately or additionally to life insurance, some providers are offering these safety nets as bonuses in their life insurance policies. Others offer convalescent grants or terminal illness cover, to help take care of customers who find themselves unable to work in other ways.

Some non-health-related benefits come in the form of gift cards, or added flexibility in changing the terms of your policy whenever life requires it. Some life insurance companies also offer cover for funeral costs, which is another way to help your family cope with your loss without plunging them into debt.

With any contract, it is of course important to look at the overall deal, and not just the benefits. This means it can be wise to compare life insurance policies without extra’s (focusing on those with competitively low premiums and/or a high lump sum payout) with, for instance, the cost of separately taking out a critical illness cover, and (now we’re back to the ugly) to objectively calculate the likelihood that you might need long-term illness cover or medical grants, and what it could cost your family if you don’t.

The potentially bad

As with any insurance, there is a chance that you may be under- or over-insured if you’re not careful. Since life insurance is taken out with the long view in mind, and people don’t like thinking about it again once it’s set up, many people fail to adjust their policy in response to significant life events, such as the start or expansion of a family, promotion(s), or buying a new house. It’s important to keep in touch with your life insurance provider, who should be able to help you adjust your cover accordingly.

While many providers offer joint life insurance plans, which cover the loss of one partner and their income, you should also consider the (hopefully remote) possibility of both partners dying or becoming unable to generate income or take care of their children. It might be safer to have separate plans to account for these possibilities. On the other hand, some providers may try to get you to take out a higher cost joint life insurance plan, when adding an extra person to your personal plan might be enough cover for your needs.

Alternatively, if you’re single and without dependants, keep in mind that you might not even need to take out a life insurance policy at all. This is also why life insurance policies tend to be marketed to new parents and those over 50, who have more reason to think about their own mortality.

The end

The aim of this blog post is to give a wider view of life insurance. Even though the risk of death is the reason most people take out life insurance, you should consider that there are other risks that could affect your family’s source(s) of income, so keep an eye out for benefits that help you deal with multiple risks when deciding on a life insurance policy.

Of course we hope that you won’t need to call on your life insurance for a long time to come. Indeed, it’s entirely possible that the peace of mind that comes with having a life insurance policy could decrease your stress-levels enough to help you live a bit longer, but as far as we are aware no research has been done on the matter.

We've teamed up with experts who offer a life insurance comparison service for our readers - find out more and compare options available here.