Beginners' guide to life insurance
Life insurance may not be the most pleasant thing to think about, but it can be invaluable in providing peace of mind for you and your family. Understanding how it works is not as daunting as it sounds, so why not let Gocompare.com guide you through the basics...?
Remember the first time you cradled your first-born child, or walked through the door of your first home? How did you feel? For many of us, the answer to that would be 'terrified'. The weight of your responsibilities can be a scary burden.
The more cover you buy, the bigger the premium, so obviously you need to factor in affordability
That's why life insurance is such a brilliant thing, it provides peace of mind. If something happens to you, your family will be kept financially safe. They'll be provided for even if you're not there to do the providing.
But the world of life insurance can be complex and it's not always easy to work out what cover is right for you.
Read on, as we unravel the confusion. And if your question still hasn't been answered, you can speak to an adviser at LifeSearch for free, impartial advice. Simply ring 0844 409 9713 or request a call back through our site.¥
What kind of life insurance policies are there?
There are a number of different kinds of life insurance. The most common type is term life insurance, where you're covered for a fixed period.
Often, policyholders reduce their premiums by agreeing to decreasing term life insurance, where the payout shrinks year on year, usually in line with a mortgage.
Alternatively, you may prefer whole of life insurance, which means the insurer would pay out whenever you died. Of course, that can mean that you're paying premiums late into life, and it's pricier than term insurance, too.
You can read our guides to term insurance and whole of life insurance for more information on each.
There are other ways to protect your family's living standards in the event of disaster. You may also want to consider critical illness cover, mortgage payment protection insurance or even school fees insurance.
Is 'life insurance' the same as 'life assurance'?
Most people use 'life assurance' to mean 'life insurance' and vice versa. However, they do technically refer to different things.
Strictly speaking, life insurance pays out if something happens to you, whereas life assurance pays out when it does. So, cover for a fixed term is life insurance, whereas a whole of life policy would be considered life assurance.
However, it's unlikely to cause problems when you're comparing life insurance policies. Just make sure you're absolutely clear about the limitations of any cover.
Which is right for you?
If you're wondering what kind of life insurance policy is best for you, it's important to think about your personal circumstances.
For example, if you have a permanent dependant, such as a child with a disability, then a whole-of-life policy could be best.
However, if you have no dependants and simply want to ensure your partner isn't left struggling to pay the mortgage if you died, you could opt for decreasing term life insurance that mirrors your mortgage payments.
Think carefully about what you want your policy to pay for, and talk to an adviser if you need help by calling 0844 409 9713.¥
How much cover do you need?
It can be hard to work out how much cover your loved ones might need in the event that you died. Again, talking to an adviser can help as they have experience in working this out.
If it's suitable, term insurance is cheaper than whole-of-life cover
You should tally up any outstanding debt, including your mortgage. Then, think about how much of a contribution to the family finances you're responsible for.
In an ideal world, you'd want to match that, at least while your children are dependent. However, the more cover you buy, the bigger the premium, so obviously you need to factor affordability in, too.
And don't forget to factor any additional sources of income your family would be able to draw on as it could mean you need less protection.
Would they receive any death in service payout from your employer if you died? Does your partner bring in a salary and could they continue to do so if they became a single parent? If the answer is yes, then you may need less cover than you thought.
If you've only taken out the policy to cover a specific event, such as funeral costs, then it should be far simpler to work out the cover you need. Check out our guide to funeral costs for more information.
Of course, you may decide you have no need for cover. If you're single and have no dependants then you might decide you don't need any life insurance.
However, it could still be a good idea to consider critical illness cover, income protection insurance or mortgage payment protection insurance so you're financially secure no matter what.
Why stay-at-home parents need cover too
If you're part of a couple and one of you doesn't work, it might be tempting to assume you only need to insure the bread winner.
But that really underestimates the value of what a stay-at-home parent contributes. If they were no longer there, the remaining partner could be left paying for child care, and maybe even a cleaner or housekeeper.
It really makes sense to consider insuring both partners, perhaps through a joint policy.
Should you have joint or single cover?
Couples should consider whether they want joint cover or two single policies. Although joint cover is usually cheaper than two separate insurance products, it will only pay out once.
That means that if one partner died, the other would no longer be insured. You need to consider whether that would be sufficient cover for your family, or if you'd be better off paying a little more for two separate policies.
Would your 'death in service' work cover be sufficient?
Some employers give their staff some extra financial security by providing a 'death in service' benefit. That doesn't mean you have to die while actually doing your job to qualify, just that if you die while working for that employer then they will pay an agreed amount.
That amount varies but is usually a multiple of your salary, for example, a lump sum payment of four years of your pay.
You might find that that's enough cover. If you've nearly cleared your mortgage and your kids are about to leave home, then you may decide that this payout would be sufficient to protect your loved ones.
However, if it wouldn't cover all your family's costs then it's a good idea to consider a life insurance policy, too. Don't worry, that wouldn't cancel your death in service benefit - they would both still pay out if you died.
Before cancelling a life insurance policy in order to rely on a death in service benefit, be aware that you would lose that benefit if you lost your job. At that point, you might find it hard to qualify for life insurance again. Think carefully before ending a policy early.
How can you keep the cost of your life insurance down?
The best way to keep your premiums low is to compare different life insurance providers, so you can find the best cover for the right price.
If you need help finding the best quote, you can speak to an adviser at LifeSearch by calling 0844 409 9713.¥
There are other ways you can control the cost of your cover. If it's suitable, term insurance is cheaper than whole-of-life cover.
If you're fit and healthy then you're a better bet for the insurer, and they'll offer you cheaper premiums as a result. So, to really reduce the cost, ditch the cigs, cut back on your drinking and get fit.
You can read more about cutting your premiums in our guide to how to keep the cost of your life insurance down.
By Felicity Hannah
