How Long Should a Life Insurance Policy Last?

Life insurance can be a helpful way of providing financial support to your loved ones in the event of your death. Once you begin to think about buying a policy, the usual questions pop up, such as ‘How much cover do I need?’ and ‘What type of cover should I choose?’. But what about how long you need cover for?

Different families have different needs, so how long you need cover will depend on a range of factors. In this article, we’ll look at some of the reasons that can affect the length of your policy.

How does life insurance work?

If you’re not familiar with how life insurance works, here’s a quick rundown:

• Before you take out a policy, you decide how much cover you want the policy to pay out when you die and how long it will last.
• Once the policy is active, you pay a premium (either monthly or annually) to your insurer to remain covered.
• If you die during the policy, your insurer will pay out the agreed sum to chosen beneficiaries (i.e., family, spouses, children, friends, etc.).
• They can then use this money where needed, whether that is to cover your funeral costs or as a gift.

Why do you need life insurance?

Without a life insurance policy, your loved one’s may face financial difficulties in the event of your unexpected passing. While it’s never nice to think about what might happen if you suddenly die, we all have to plan for the worse just as much as we prepare for the better.

You may need life insurance if you have:

• Dependents who rely on your income (partner, spouse, children, etc.)
• Debts or loans that would burden your loved ones
• Mortgage payments that need to be covered
• Funeral expenses that could otherwise strain family finances
• Future financial goals, such as education for children
• No savings or investments set aside to support your loved ones after you’re gone.

Some families may need more cover than others, though as a general rule of thumb, you should aim for at least x10 your annual salary. If you have a large family or significant debts, a higher cover amount may be necessary.

How long should I be covered for?

In most circumstances, the length of your life insurance policy can be defined in two ways:

1. You’re looking to provide financial protection for your family for the long term, including any current or future costs that may arise
2. You’re looking for protection in a certain timeframe, such as to cover a mortgage or your family until your children have grown.

For general protection with the long term in mind, whole life insurance is often recommended, as it provides cover for your entire life as long as the premiums are paid. This type of policy can be beneficial if you want to ensure that your family receives a payout regardless of when you pass away, which can help cover ongoing expenses or leave a legacy.

On the other hand, if you wish to provide support for a specific period, term life insurance may be more suitable. With this type of policy, you choose the length of the policy in x amount of years (known as the ‘policy term’).

If you pass away during the term, the policy will pay out the agreed sum to your loved ones. However, if you survive the term, your cover will expire, and you will need to take out a new policy if you still wish to own cover. Depending on the insurer, you may be able to extend the policy.

Ultimately it will depend on your own circumstances, which is why you should carefully consider your specific needs and financial situation beforehand. For example, if you want permanent cover with no specific timeframe then a whole life policy may be suitable. Whereas if you wish to be covered for a certain amount of time, then term life insurance may be your preferred option.

When should I take out cover?

There’s a common misconception that you don’t need life insurance until it’s deemed necessary, such as when you have a family or significant debts. However, it can be beneficial to take out a policy sooner rather than later for a number of reasons.

For starters, life insurance costs usually depend on your age and health. For most people, buying a policy in their 20s will result in a considerably lower premium than if they bought cover in their 40s. In addition, policies like whole life insurance typically have fixed premiums where your monthly payment remains the same throughout the policy.

With all this in mind, it may be worth buying cover early whilst premiums are cheaper. Even if you don’t have dependents at this stage, it could come in handy in the future saving you both time and money.

How much does life insurance cost?

As mentioned, age and health are two of the biggest factors insurers use to determine your premiums for life insurance. However, there are other factors too, such as:

• The amount of cover required — a higher cover amount will result in higher premiums.
• The type of policy — whole life insurance tends to be more expensive than term life insurance as there is no expiry date.
• The length of the policy — the longer your policy, the more it will cost over time. 
• Your lifestyle — How much you drink alcohol or whether you smoke can also affect your premiums.
• Your occupation — occupations deemed high risk may lead to higher premiums due to the increased likelihood of claims.

If you think you’re ready to take out life insurance it’s worth speaking to an adviser or broker who can help guide you through your options and find the right cover for your needs.