Five tips when buying life insurance

24 July 2009

Nobody likes to think about what would happen to their loved ones when they die, but if you want to ensure your dependants are looked after, taking out life insurance is often a must.

Here is Moneywise's five-minute guide to buying life insurance:

1. Look after yourself

Ensuring you lead a healthy lifestyle will help reduce your premiums, as you’ll be viewed as less ‘risky’ by insurance companies – heart disease and high blood pressure, for example, are commonly linked to obesity.

According to Kevin Carr, director of protection development at PruProtect, the more unhealthy you are, the higher your premiums.

If you give up smoking for at least 12 months, this could also dramatically reduce the cost of your life insurance.

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2. Start paying earlier

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.

Remember to take inflation into account, as the real value of your payout will be reduced over time.

Protection specialist LifeSearch suggests considering taking out an index-linked policy, so that its value keeps track with inflation.

3. Take out separate policies

Although taking out two separate policies will cost slightly more than a joint policy, Carr thinks the former is “better value for money” because you get two payouts instead of one.

A joint policy only pays out after the first person dies – therefore two payouts would be more beneficial to couples with dependants.

4. 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.

5. Be honest

Pretending you don’t smoke or only drink a couple of glasses of wine a week in order to cut your premium is pointless – your insurer might not pay out if it discovers you have been dishonest.

Also, always give as much detail as possible, and get regular checkups with your GP to ensure that the details in your policy are up-to-date. 

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