Think about whether you need cover
Life insurance can provide financial help for your loved ones, and maybe help them make ends meet, in the event of your death.
If you are the main earner in your household and have people who are financially dependent on you, you may decide you need cover. A policy could ensure that your partner is able to pay the mortgage if you died, for example.
However, if you are single, it is not necessary to take out this type of insurance, and bear in mind that you don’t have to take out this cover if you get a mortgage.
If life changes, though, and you have children or other financial dependants, life insurance becomes more important.
Bear in mind that this type of insurance is often inexpensive, and the younger you buy it, the lower the cost, so if you are expecting to need cover in the near future, it can be worthwhile buying now.
Check employee benefits
Before buying life cover, check how much your employer will pay out if you die, if anything.
Some companies and organisations offer life insurance as part of their employee benefits package.
Many employers also offer “death in service” to their staff. This is an employee benefit that pays out a lump sum to your next of kin if you die while you are employed. The payout is usually a multiple of your annual salary. In some cases it can be as much as eight or nine times salary, while in others it might be one or two times salary, or less than that.
As long as you tell the truth when applying, there isn’t really any small printJustin Harper, chief marketing officer at LifeSearch
Check what the deal is at your employer, and consider if any payout your loved ones might receive will be enough to support them financially if you die. Remember, too, that these benefits will stop if you leave your company.
Consider the different types
The most common type of life cover is term insurance. With this, if you die during the pre-agreed period, your policy will pay out a lump sum.
There’s “level” term insurance, where you choose the amount of cover you need at the start of the policy, and this remains the same throughout the term.
Other types include decreasing term insurance, where your life cover decreases during the term of the policy, which reduces the potential payout the longer the term runs. This type of cover is often taken out in conjunction with a repayment mortgage.
You can also buy increasing term insurance, where the potential payout rises over time – for example, to take account of the rising cost of living.
Another type of term insurance is family income benefit, which pays a regular income to your loved ones over a specified period of time after you pass away, instead of a lump sum.
You may, alternatively, opt to take out a so-called whole of life policy. As the name indicates, this gives you cover for your whole life, with a lump sum paid to your family when you die. This type of cover is typically the most expensive, since it is certain to pay out, and it is often used for inheritance tax planning.
Meanwhile, you can choose between a single life insurance policy that pays out on your death, or a joint life policy that covers two people, usually a couple. The joint life policy ends and pays out to the surviving partner when the first person dies.
Compare costs
As with any type of insurance, you are paying for peace of mind, and in the case of life insurance, that comes relatively cheap.
Life insurance can start at just a few pounds a month, but your age, health and whether you are a smoker will affect how much you pay.
For example, a 40-year-old non-smoking male looking for £100,000 of life cover for 20 years would pay from about £7 a month, according to Confused.com. At age 25, the same policy would cost from £3.75 a month.
Justin Harper, the chief marketing officer at the insurance broker LifeSearch, says: “Smoking roughly doubles the premium, and critical illness cover costs around six times more than life cover. A tip for couples is often to consider buying a policy each instead of joint life.” This may be slightly more expensive, but you will have twice the amount of cover this way.
Find the right policy
You can often get cheap cover by buying through a comparison website such as MoneySuperMarket or Confused.com.
But it is important to make sure you are getting the right type of policy and level of cover for you, so speaking to a broker can help.
If you are thinking about reviewing your finances in general, you may want to seek independent financial advice.
A financial adviser can advise on life insurance. “They will also be able to compare any existing cover against any newer products available, which may include enhanced features or added benefits,” says Victoria Francis, the head of individual protection propositions at the insurer Aviva.
Check the small print
Harper says: “As long as you tell the truth when applying, there isn’t really any small print with life insurance, and 99% of claims are paid in the UK. When you apply for cover, you agree to give the insurer access to your medical records – and without this, it’s not possible to buy cover.”
However, it is important to consider who you want to benefit from your policy. For example, if you are cohabiting but not married and you have not made a will or set up a trust, any payout on your death probably won’t go to your partner.
Check how flexible the policy is. Some enable you to extend the term, for example, or switch to a different type of cover. But the cheapest policies are unlikely to come with this flexibility.
Consider, too, if the price could jump as you get older rather than remain fixed.
Review your cover when life changes
Life insurance does not typically come up for renewal like other types of insurance. This type of cover is often taken out for a long period of time – maybe even several decades.
“The cost of cover is usually based on your age and health, which means that if you swap policies, you’re likely to see a price increase as time goes on,” Francis says. “As you get older, you may even find that an insurer declines to offer you cover if you try to change policy.”
But you should still review your cover every so often, especially if your circumstances have changed – for example, if you have bought a property, got married or had children.
If your health has not changed since you took out your policy, you may want to do a quick online comparison to check that what you are getting and what you are paying are still competitive. If you decide to switch insurers, you are usually able to cancel a life insurance policy without paying a fee.
