We look at how to work out which policy is best for you.
Not everyone needs life insurance.
However, if someone – such as your wife, your husband or your children - would be adversely affected by the loss of your income should you die, then you really should have some cover in place.
So where do you start?
You can easily research life insurance policies and prices without committing to anything. Visit the lovemoney.com life insurance store today >
How much cover do you need?
One of the first things to consider when buying life insurance is exactly how much cover you want to take out.
This can vary quite significantly depending on your circumstances, so it’s worth giving it some proper thought.
For example, do you want cover that will simply cover the cost of your mortgage?
Or do you want to pay a bit more so that not only does it pay off the mortgage, but your loved ones are left with a small lump sum or regular income too.
What if you don’t have a mortgage? How much cover should you go for? And what about inflation?
There are also plenty of online calculators that you can use to figure out how much you should be going for. But in the end you’ll have to decide for yourself how much is necessary.
Just don’t make the mistake of buying too little cover – it won’t be you that pays for your mistake, but the loved ones you leave behind.
What type of policy?
Knowing how much cover you want is only part of the decision though – just as important is the type of policy you go for.
That’s because life insurance comes in a number of different forms. It’s important you pick the right type of cover for your circumstances. Let’s take a look at the main ones.
Level term assurance: Thankfully with life insurance, the clue tends to be in the name. In this instance, the cover is level across the term of the policy – in other words, whether you die in year one or year 40 of your policy, the payout will be the same.
Decreasing term assurance: The payout you receive from this type of policy will decrease over time. This is typically chosen by people with mortgage debt – the idea is that you will owe less on the mortgage in 20 years than you do today. Premiums for this form of life insurance tend to be smaller, compared to level term assurance .
Increasing term assurance: As the name suggests, the amount your family will receive from the insurance increases the later the term goes on. This is basically a way of inflation-proofing your cover, as in 20 years the £150,000 cover you’ve gone
for will likely be worth a fair bit less in real terms.
Guaranteed whole-of-life insurance: Term assurance will only pay out if you die within the specified term, say 40 years. However, if you want to ensure that your loved ones get a payout even if you die at 90, then whole-of-life insurance is the option for you.
Family Income Benefit. This is a frequently ignored form of life insurance, even though it offers appropriate cover for many people, and is cheaper than traditional forms of term assurance. A family income benefit policy will pay a monthly income to your loved ones, rather than a lump sum. This is a big selling point, as you may not want to leave them having to make complex investment decisions with the lump sum they would get from other policies upon your death.
Single vs joint policies
Next, you’ll need to decide whether you want to go for a single policy or a joint policy with your other half.
Not that long ago, it was cheaper to go with a joint policy. However, that has changed in recent years.
There are also practical issues to consider – when you go for separate policies, you are essentially getting double the cover, as with joint cover there will only be a payout on the first death.
This is standard advice for all financial products really, but it’s particularly important with life insurance.
Don’t just accept the first quote you receive – shop around and see if you can get a better deal elsewhere.
The marketplace is so competitive, it can really make a difference to your costs if you shop around properly. Why not give our life insurance comparison engine a go?
Of course, it’s worth remembering that when picking a life insurance policy, it pays to look beyond the headline rate. Be sure to read the small print so you understand exactly how your cover works – you want to pick the right policy, not just the cheapest.
Using a trust
Even once you’ve found the perfect policy, you still need to consider a potentially vital factor – putting the policy ‘in trust’. This can make a big difference to your inheritance tax bill, as placing your policy in trust effectively removes it from your estate.
This means your loved ones will receive the payout quicker, as they will not have to wait for your estate to be divided up. What’s more, the payout will also be free from inheritance tax, potentially giving your loved ones an extra 40%!
Would your family be able to cope if you were no longer around? Make the first step towards protecting your family's lifestyle today. Easily get a no-obligation life insurance quote today with the lovemoney.com life insurance store >
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