Life insurance is a valuable safety net for anyone with a family to support or a mortgage. No one likes to think about dying, but failing to plan can leave loved ones with financial stress and big bills if you die unexpectedly.
With life cover you choose the sum you want to insure, for example £100,000. The lump sum is then paid out to your beneficiaries if you die within the term of the cover. Most plans are taken out to cover a mortgage so the term is typically 25 or 30 years. You can take out joint life cover or two single policies to cover a couple. A joint policy is usually slightly cheaper but will only pay out once.
Premiums are typically paid monthly with the cost varying depending on your age and state of health – with older people and those with poor health or pre-existing conditions and smokers paying more.
Different types of policy are available. Under a ‘decreasing term life insurance’ policy the amount of cover reduces over the years as your mortgage debt shrinks. Premiums are usually cheaper. In contrast, with ‘level term life insurance’ the payout remains at the same level for the term of the policy.
How to buy
When it comes to buying life cover there are two main routes – either online through a comparison website or through an insurance broker. There are pros and cons to both approaches, including convenience, cost and whether you need advice, so it is important to take time to think about your needs and what might suit you best.
Online comparison websites have revolutionised the way consumers can search and buy insurance. If your needs are straightforward and there are no issues which you may need to discuss further with an insurance expert then the 24/7 convenience of a website will be appealing.
A quality, FCA authorised comparison service will ask for your details and the level of cover you need. There is no need to speak to an adviser. It will then produce a list of available products showing the monthly premium and any additional benefits to the cover. You can make a selection and purchase immediately online.
Kamran Altaf, life insurance product manager at comparison website comparethemarket, says these services give customers autonomy when making a purchase as they control the process from start to finish. In contrast, some brokers may have vested interests in recommending certain insurers or products as they may be receiving a commission on sales.
He says: “Consumers can easily compare a wide range of policies and premiums and self-select which option best serves their needs.”
Comparison sites are free and, in some cases, may offer introductory welcome gifts to new customers, such as shopping vouchers.
One of the main disadvantages of website searches is that not all insurers will be included in the comparison. This is because some insurers choose not to list their products on these services.
There is also little support in the application process. It is up to the consumer to ensure they enter their details correctly and don’t forget to declare anything, such as any medical conditions.
For many consumers it is preferable to speak to an expert life insurance broker when making such a big decision and purchase. This is particularly true if you don’t fit the ‘standard’ tick boxes for the online comparison websites – for example you have a health condition.
Although with a broker you can only call during office hours (there isn’t the 24/7 service the online comparison websites offer) it does mean you will get to speak to someone.
You can use a broker but not have advice – known as a non-advised sale – although many consumers do value the experience and advice of an expert when buying life cover.
Emma Walker, chief marketing officer at independent insurance broker LifeSearch, says: “While many people are happy to buy from comparison sites without advice, we also know that some customers who start the online journey often realise they need help and advice along the way.
“Brokers will not only understand the market well, cutting through the jargon, but will also get to know the person, their circumstances and health and why they need the cover,’ Ms Walker adds.
“Independent advisers will have access to dozens of insurers and different products, some of which may not be available on comparison sites.”
In some cases, if you have a pre-existing health condition or a family history of a particular illness, it may be necessary to speak to specialist ‘impaired health’ insurers. A broker can help put you in touch with the necessary experts to find appropriate cover. A broker can often find affordable cover for consumers who have been declined cover online, for example.
Brokers not only offer support and advice at the time of an insurance application, but most will also support your loved ones in the event of a claim. A broker will often help grieving families get their insurance payout quickly, sorting out the paperwork on their behalf.
A broker can help ensure your life policy is written in trust – if this is something you need. Writing the policy into trust means any payout will go direct to your beneficiaries on your death instead of into your estate and the probate process. It also means the lump sum payout will avoid the 40% inheritance tax if this is later applied on your estate.
Some brokers charge an upfront fee for their service, typically £25 to £30 for example, although many don’t charge customers fees and instead earn a commission from the insurer.
Brokers will point out any relevant information in the small print of your policy – something that may not be made clear or you might miss if you make a life insurance purchase online.
Steve Marshall, chief executive at independent broker Reassured, says: “It is essential to read the terms of your policy and understand its conditions and any exclusions. There may be terms associated with some causes of death and accidental death, for example, and the time the policy must have been in place before you can claim.
“Such terms may vary significantly between insurers and a good broker should be able to explain the important details.”
This article was written by Moneywise in partnership with independent life insurance broker Reassured