Life Insurance - Buyer's guide
How to buy Life Insurance
If you’ve bought a house, started a family, or simply want to ensure your loved ones will be provided, life insurance is often a must. But there are many factors you must think about when choosing to compare life insurance policies.
- You need to understand the different types of cover before you can choose the best life insurance for you and your family. Simple level term insurance lasts for a set number of years and pays out if you die during that term. Decreasing term insurance – sometimes known as a mortgage protection policy – decreases the amount of cover as you pay off more of your mortgage. Family income policies are similar but pay an annual income for the remainder of the period covered. Whole of life insurance covers you for the rest of your life, rather than a set term.
- Before you can compare life insurance policies, you’ll need to choose between single life cover (just you) or a joint policy that cover you and a partner. With the latter type, when either one of you die, the policy pays out — this is the most common type of joint life cover. Alternatively, you might take out two separate policies: this will cost slightly more than a joint policy, but you will get two payouts instead of one — two payouts are more beneficial to couples with children.
- Work out how much cover you need before you obtain a life insurance quote. Firstly add up your outstanding mortgage and other debt, then work out how much your dependents might need to cover any other expenses such as school or university fees. Think about any cover you already have such as death in service benefits you might have through your employer. Subtract the latter from the former and you should have a figure you need to cover your dependents in the event of the worst happening.
- The earlier you take out insurance, the cheaper your premiums — as long as you take out a guaranteed policy, which means your premium will remain the same throughout the term. When you’re younger you’re usually healthier and fitter, and so are a lower-risk client — arguably the optimum time to find the best life insurance policy.
- Remember to take inflation into account, as the real value of your payout will be reduced over time. You can take out an index-linked policy to ensure its value keeps track with inflation.
Use a trust. If you are concerned that your estate might be subject to inheritance tax when you die, then consider putting your life insurance into a trust. This will ensure the payout goes to the person, or people, you intend it to, rather than the taxman.