Life insurance buying guide

What is life insurance and why would you need it?

How would you know what cover is best for you?

As a life insurance beginner, we hear these questions you ask and want to try our best to explain the ins and outs to you, as simply as possible.

When taking out a life insurance policy, you want the policy and it’s cover to give you and your family financial protection in the event of your death.

Before taking out these types of policies, it is wise to ensure you do your homework, to make sure you’re getting the best cover for you along with the best value policy that is affordable for you.

Why do you need life insurance?

Before taking out a policy, you need to work out what kind of cover you want it to offer. We have listed below some of the main reasons people may take out life insurance policies:

  • Many people take out life insurance after becoming a parent. In the event of death, the life insurance payout could provide for their children.
  • Buying a property – a life insurance payout would ensure that their spouse/partner or family would be able to pay off the mortgage in the event of your death, and would not therefore face unfortunate circumstances of repossession or eviction.
  • People also look at it as an inheritance option, to leave for relatives after you die or pay for your funeral costs.

Whatever your reason may be, having the right type of life insurance in place can give you the peace of mind that you can protect your dependants when you die.

But how would I know how much to protect?

As a general rule with all protection insurance policies, the higher the amount you wish to protect, the more your premiums will be. Points to consider when thinking about how much you may want to protect can be:

  • If you are choosing your policy based on simply covering your mortgage, choosing what needs to be protected should be pretty simple.
  • If you should want a policy that will, say, look after your dependents for a number of years, you should base this on what your current expenditure, what you can afford in the present day, and then think about the future costs, ie, University costs, or child care, depending on the age of your children
  • If you are over 50 and considering taking out a policy for such things as inheritance or to help your family with funeral expenses for later on in life, you can balance this on how much you may be receiving as an income at present, but then also if you retire.

What length of time should your cover last?

When taking out life cover, you have a couple of options. You can take it for a fixed period of time, or for the rest of your life.

We class these as term insurance for the set period of time, or whole of life insurance which will be for the rest of your life.

If for example you wanted to cover the length of your mortgage, which on average is 25 years, term insurance could be the best option for this. As well, if you were looking to protect your family financially whilst your children were growing up to a particular age, term insurance would again be possibly the best policy for you.

You can read more on our term life insurance here. Don’t forget, with term insurance, you do take the risk of the policy expiring before your death, which would mean you would not be eligible for a payout.

If you were looking to take out whole of life insurance, this would usually be more suited to people that were possibly looking to leave a lump sum as inheritance to family members. Of course, the earlier you take out a whole of life cover, the more return your family could receive if you have a long and healthy life. You can find out more about our whole of life insurance here.

It is important to consider your financial commitments at present when considering which length of policy to take out. Use our term life insurance calculator to help with some research.

Should I always pay the same premium?

Over the course of time, premiums can change in line with inflation. They could also decrease if, for example, you are paying a term policy that covers your mortgage.

The one thing to remember for something like is that the lower your mortgage becomes, the less will be paid out in the event of your death.

Should my spouse or partner have a life policy also?

There is nothing to say that your partner should have a life policy if you, for example, are joint owners of your property.

However, financial commitments and outgoings are more often than not linked to both wages and income of supported benefits.

Joint policies can be taken, or two separate policies. In the event of two separate policies being taken out, there would be two separate payments paid out, giving more protection in the long run.

If there was a joint policy, the policy would pay out on the first death, after which the policy would then end.

What determines my premiums?

Of course, the more you want, financially, to be covered, the higher your premiums can be, but also there can be a number of factors that can increase your premiums, such as:

  • Your age
  • Your health
  • Your lifestyle
  • Your family medical history

What does life insurance policy in trust mean?

Something to consider when taking out life insurance (and don’t worry, our friendly staff will run through this with you) is writing your life insurance policy in trust. This means your family may be able to get the payout with the least inconvenience as well as the lowest possible tax charge in the event of your death.

Writing your life insurance policy in trust will mean that the cover is separated outside of the rest of your assets, such as savings, investments and any property. This will mean that payments from the policy are not included in your estate for inheritance tax purposes. (Whilst this is the current legal position it could change so always seek advice.)

It’s always good to compare life insurance policies

There are so many companies offering cheap life insurance, it is hard to know where to start. It always makes sense to go online and compare prices from as many providers as possible.

You can use our comparison service to check prices for different lengths as well as different levels of cover to give you an idea of various policy prices. Use our online quoting system to see what can be offered to you.

Buying life insurance is not a decision to be taken quickly, we understand that, so it’s important to consider exactly what kind of protection your family will need, and what premium you can afford to pay in your current circumstances. You can also call our UK based contact centres on 0800 080 6376 (Lines are open Monday to Friday 10.00 AM – 4.00 PM excluding Bank Holidays) who can talk you through all levels of cover we offer.