# LIFE INSURANCE: WHY IS IT SO IMPORTANT? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-06-02 Category: INSURANCE Category URL: https://financedigest.com/category/insurance Meta Title: Understanding Types of Life Insurance in the UK Meta Description: Understand the importance of life insurance for financial security. Learn about different types, including term, whole, critical illness, and more. Protect URL: https://financedigest.com/life-insurance-why-is-it-so-importanthtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1290693328-1736815663033-compressed.jpg) _![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/119-1736815663054-compressed.jpg)_ _By_ [**_Sophia Bhatti_**](https://hoxtoncapital.com/staff/sophia-bhatti/) **_,_** _Partner at Hoxton Capital Management._ [Life insurance](https://hoxtoncapital.com/insurance/) provides a security cover to beneficiaries on the passing of the insured. Depending on the type of life insurance, it is usually paid out after death or after a certain amount of time passes by. As part of financial planning [,](https://hoxtoncapital.com/insurance/) it is often the case that we plan not only for ourselves but our families and loved ones. As a result, one thought weaves its way into this: how can I ensure that my family will be financially secure even after I’m gone? The foremost answer that pops into our heads is life insurance. [**TYPES OF LIFE INSURANCE**](https://www.financedigest.com/types-of-insurance-for-yourself-and-your-family.html "Types Of Insurance For Yourself And Your Family") A slew of [insurance coverages](https://www.financedigest.com/5-tips-for-selecting-the-best-car-insurance-coverage.html "5 Tips for Selecting the Best Car Insurance Coverage") is available in the UK. Apart from the [type of cover](https://www.financedigest.com/understanding-the-different-types-of-car-insurance-covers.html "Understanding The Different Types Of Car Insurance Covers"), you must also consider the amount of the cover depending on your family circumstances and priorities. Here’s a brief roundup: [**TERM LIFE INSURANCE**](https://www.financedigest.com/no-exam-term-life-insurance-premiums-explained.html "No-Exam Term Life Insurance Premiums Explained") This is a cover synced to a particular period of time or ‘term’. It is often taken out to cover a loan or continuous financial obligation. There are three further subtypes. - Decreasing Term Life Cover – As the name suggests, the amount to be paid out by the [insurer decreases over time](https://www.financedigest.com/modernisation-of-insurance-technology-saves-invaluable-time-and-money.html "Modernisation of insurance technology saves invaluable time and money"). This requires that the [loan amount also lessens over time](https://www.financedigest.com/georgias-tbc-bank-slashes-loan-decision-time-with-fico-solution.html "Georgia’s TBC Bank Slashes Loan Decision Time with FICO Solution"). - [Level Term](https://www.financedigest.com/spacing-pfizer-covid-shots-boosts-antibody-levels-in-long-term-study.html "Spacing Pfizer COVID shots boosts antibody levels in long-term study") Life Cover – In this, the loan amount remains the same regardless of when it is claimed. One should note that this does not account for inflation. - Increasing Term Life Cover – The [insurer pays out more as the time passes for families who may need](https://www.financedigest.com/breaking-down-the-types-of-insurance-you-need.html "Breaking Down the Types of Insurance You Need") more help as the time goes by. [**WHOLE LIFE INSURANCE**](https://www.financedigest.com/scratched-ev-battery-your-insurer-may-have-to-junk-the-whole-car.html "Scratched EV battery? Your insurer may have to junk the whole car") This covers the entirety of one’s [life and is paid out after death](https://www.financedigest.com/the-life-and-death-of-queen-elizabeth.html "The life and death of Queen Elizabeth"). **JOIN** [LIFE INSURANCE](https://www.financedigest.com/what-type-of-life-insurance-policy-is-right-for-me.html "What Type of Life Insurance Policy Is Right For Me?") This is one policy that covers both you and your partner. **OVER 50S LIFE COVER** These are usually whole life policies for those above the age of 50. **CRITICAL ILLNESS COVER** [It is an option to put away a portion of the payout if you suffer a pre-determined critical illness.](https://hoxtoncapital.com/insurance/critical-illness-cover/) **TERMINAL ILLNESS COVER** If you are diagnosed with a terminal illness, which causes death within a specific period of time, the amount is paid out early. **CHILDREN’S COVER** This is added to your life [insurance to cover](https://www.financedigest.com/japan-insurers-to-maintain-cover-for-lng-vessels-in-russian-waters.html "Japan insurers to maintain cover for LNG vessels in Russian waters") the accidental death of a child or a critical illness. This is available at an extra cost. **WHAT MAKES LIFE** [INSURANCE IMPORTANT](https://www.financedigest.com/why-is-trade-credit-insurance-important.html "Why is Trade Credit Insurance Important?") Now that we understand a little better how life [insurance and its different types](https://www.financedigest.com/types-of-insurance-coverage.html "Types of insurance coverage") work, you can choose the one that works best for your finances and life in general. At the same time, you should also be [clear on why you should get a cover in the first place](https://www.financedigest.com/future-cheque-clearing-model-places-emphasis-on-speed-and-innovation.html "FUTURE CHEQUE CLEARING MODEL PLACES EMPHASIS ON SPEED AND INNOVATION"). 1. **PROTECT YOUR FAMILY** This is the most obvious reason. As we discussed before, you want your family to be [secure in the eventuality that you cannot financially](https://www.financedigest.com/wrapping-financial-services-in-a-security-blanket.html "Wrapping Financial Services in a Security Blanket") support them. It may happen that your [savings are not enough](https://www.financedigest.com/80-of-workers-not-saving-enough-for-retirement.html "80% of workers not saving enough for retirement") to tide your family for longer than a short duration. It safeguards against a sudden loss. 2. **[SUPPORT IN CASE](https://www.financedigest.com/kiwi-hit-by-new-virus-case-souring-risk-sentiment-supports-yen-swiss-franc.html "Kiwi hit by new virus case; souring risk sentiment supports yen, Swiss franc") OF LOST INCOME** If the primary or sole breadwinner of a family [passes away](https://www.financedigest.com/india-to-hold-one-day-state-mourning-on-passing-away-of-queen-elizabeth.html "India to hold one day state mourning on passing away of Queen Elizabeth"), the financial ramifications can be monumentous. The payout from life [insurance can help cover](https://www.financedigest.com/app-based-insurance-cover-for-millennials-possessions-and-experiences-back-me-up-powered-by-ageas.html "APP-BASED INSURANCE COVER FOR MILLENNIALS’ POSSESSIONS AND EXPERIENCES: ‘BACK ME UP’, POWERED BY AGEAS") monthly expenses on utilities, food, clothing, housing, etc. 3. **PAY OFF DEBT** Debts aren’t written off after an individual’s death. A sudden passing may push the family to [sell assets](https://www.financedigest.com/uks-cineworld-to-not-sell-assets-individually-denies-talks-with-amc.html "UK’s Cineworld to not sell assets individually, denies talks with AMC") or use up their savings to pay off debts. Life insurance can help in this case. It can be used to settle debts without interfering with day-to-day expenses. 4. **COVER FUNERAL EXPENSES** Funerals are rarely cheap and never easy to deal with. Apart from the grief and loss of a person that the family has to deal with, worrying about the expenditure on a funeral only worsens the situation. One can either divert some amount to the funeral home taking care of the arrangements or [pay by themself for the time being and get reimbursed by the insurance](https://www.financedigest.com/are-you-getting-what-you-are-paying-for-when-it-comes-to-cyber-liability-insurance.html "ARE YOU GETTING WHAT YOU ARE PAYING FOR WHEN IT COMES TO CYBER LIABILITY INSURANCE?") payout later on. 5. **FUTURE EXPENSES** Let’s say your child wants to go to a college, there is going to be a wedding in the family, or other such major expenditures. These are not immediate expenses to be taken care of; however, they still require some planning. The money from life [insurance can help cover some of these costs](https://www.financedigest.com/as-the-cost-of-living-bites-tackling-insurance-quote-manipulation-is-key.html "As the cost of living bites, tackling insurance quote manipulation is key"). 6. [PROTECT YOUR BUSINESS](https://www.financedigest.com/the-best-ways-to-protect-your-business-from-cyber-threats-in-2021.html "The best ways to protect your business from cyber threats in 2021") If you own and run a company, an unexpected passing can have serious ramifications on employees as well. If your family is well taken care of, the [insurance money can also go to help tide the business](https://www.financedigest.com/are-there-tax-breaks-for-business-health-insurance.html "Are there tax breaks for business health insurance?") over. After all, the business also [brings in income](https://www.financedigest.com/incoming-starbucks-boss-to-bring-consumer-insight-to-coffee-culture.html "Incoming Starbucks boss to bring consumer insight to coffee culture") for your family. Cast all these reasons and more aside and just think of the one [reason you need](https://www.financedigest.com/5-reasons-why-e-commerce-sites-need-a-token-gateway.html "5 reasons why e-commerce sites need a token gateway") to get life insurance, that is, ease your family’s financial worries. Not to mention the financial discipline it evokes with periodic premiums that have to be paid. Selecting the right [insurance for you is a balance between your budget and needs](https://www.financedigest.com/reasons-you-need-a-car-insurance-when-driving-in-thailand.html "Reasons You Need a Car Insurance When Driving in Thailand"). As time passes, if your situation [changes you will also have to re-evaluate your insurance](https://www.financedigest.com/insurers-must-reimagine-traditional-risk-models-to-adapt-to-climate-change.html "Insurers Must Reimagine Traditional Risk Models to Adapt to Climate Change ") requirements. It is neither too early nor too late to make sure that your family and you are appropriately covered. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---