Contemplating what will happen to the financial wellbeing of our loved ones when we die can be difficult to comprehend, let alone plan for. And the prospect of yet another cost is not particularly appealing when mortgage rates are climbing again and the cost of living isn’t becoming any more affordable. Life insurance can fundamentally feel like a con.

However, says Lorna Hopes, a financial adviser specialising in mortgages and life insurance at Smith and Pinching, securing life cover early can make a genuine difference. “Don’t keep it on that to-do list,” she says. “Make sure you’re looking at it, considering all your debts, what you’ve got, what you might want to protect, and the sooner you take it out, the better, because then you’ve got financial security for the future.”

What are the advantages of life insurance?

“Primarily, it gives out a lump sum if you pass away during the term of the policy. It’s giving financial protection for your spouse and dependents that can be used to pay off mortgages or any large debts,” explains Hopes. “It provides peace of mind that there’s financial protection, should the worst happen.”

Life insurance can be secured to cover all manner of things, even a child’s university fees. “If you want to make sure in the future that your children are covered for that cost, then yes,” says Hopes. “You don’t need to specify the reason you’re taking the cover out, you just need to make sure the sum assured is sufficient for whatever purpose you need.”

Other advantages include the fact the lump sum is “tax-free under current legislation”, plus, if you arrange cover at a “relatively young age, it can be quite inexpensive”. In fact, for “people with no underlying health conditions, [taking it out] in their 20s can be relatively cheap. They could be looking at £5 or £6 a month for maybe just under £100k worth of cover, which is a good lump sum,” says Hopes.

She adds: “Once you’ve taken the policy out, if you’ve got guaranteed premiums, those premiums won’t change. So even if you’re 50, and that’s how long you’ve written the policy to, you’re still paying that £5 or £6 a month, which the cost difference, if you took it out in your 50s, would be dramatically different.”

What are the disadvantages?

The primary drawback is that it can feel like your money is disappearing into thin air every month. “If you don’t pass away during the term of the policy, you’ll have paid those premiums and you’re not actually getting anything back. It doesn’t build up any surrender value,” says Hopes. It’s not a savings scheme, it’s a contingency arrangement in the event of your death.

Not everyone will benefit from modest monthly payments either. “The older you are, and if you do suffer from existing medical conditions, that can unfortunately make the premium higher, because you are more likely to make a claim depending on what you may have,” explains Hopes.

Other drawbacks may include that “some applications, when you submit them, might have exclusions or waiting periods, primarily related to medical conditions. They might say, ‘We’ll cover you, but not for depression or mental health,’ so if you passed away because of mental ill-health, they wouldn’t cover you for that.”

Who actually needs life insurance?

“Not everyone,” admits Hopes. “If you’re a single person with no dependents, no debt to cover, it’s probably something you don’t need.” It all depends on your individual circumstances.

“It can be valuable at all [financial planning] stages, but usually it’s at that younger adult stage where you’re newly married, having children, getting a property, that’s when we really see the value of taking it out,” she continues.

Can you cancel it?

If you’re finding the monthly payments difficult to keep up with, you don’t have to commit to life insurance. “Absolutely you can cancel it. You don’t get any cash back,” reiterates Hopes. And “if you’re fortunate enough to have made sufficient overpayments on your mortgage, or if you won the lottery or come into an inheritance, that kind of thing, you can cancel it”.

Do life insurers really pay out when it comes to it?

While it may seem insurance providers deliberately make payouts difficult to obtain when incidents occur, Hopes maintains “as long as you’ve been honest and open during the application process”, this needn’t be a concern, provided you’ve selected a trustworthy insurance provider.

“If you lie and say you’re a non-smoker to get cheaper premiums, and then something happens to you, and they go to your GP, and can see you were a smoker or had the nicotine patches on prescription, they know you’ve lied at that stage. That would be when they wouldn’t pay out,” she explains. “But if you’ve been open and honest at the start, and you pass away within the terms of the policy, it should pay out.”

What else do you need to know about life insurance?

Should you arrange a policy, it’s worth considering placing it in trust. “The benefits of writing the policy under trust is faster payment, because you’ll avoid probate,” says Hopes.

Typically, an additional trust deed must be completed, granting greater control over the eventual lump sum. “You can specify, ‘I want it to go to my children but not until they’re 18,’ that kind of thing,” says Hopes.

“You’ve got a little bit more control over the money, even when you’re not here, typically under trust. Plus, it falls outside of your estate for inheritance tax purposes, subject to current legislation.” Furthermore, if privacy is particularly important to you, placing it under trust means “it doesn’t become part of the public probate record, so the payout is not included in anything people might be able to see on your probate record after you’ve passed away.”

How can you arrange life insurance?

Hopes suggests comparison websites can be useful if you possess a solid grasp of the subject, but “if you want holistic, all-round advice, speak to a broker or financial advisor, especially if you have things like diabetes or any illnesses. It can be invaluable talking to a broker, because they know which providers are going to be more sympathetic to those kinds of things and maybe not increase the premium or exclude you because of that”.