Life insurance explainedFit your needs

If you have people who depend on you financially, you need some kind of life cover. This doesn't apply just to full-time workers. Part-time workers and full-time carers need cover, too.

Do your research

If you have dependents, you are advised to investigate life cover

There’s no ‘one size fits all’ deal available and it’s important to find a policy that suits your family needs.

It's up to you whether you have one policy to cover all your protection needs, or two or even three policies to cover different needs. But it may be cheaper and easier to manage if you split up your protection needs into categories and choose policies that fit those particular needs.

You can buy life insurance from various companies, either direct, through a broker or an independent financial adviser (IFA).

To find an IFA, see the Unbiased website. Be aware, though, that some brokers exclude some companies from their searches for commercial reasons. You may be able to buy your policy over the phone or via a web site, but you may not receive advice through this route.

Before making a decision, think about the type of cover you want and how much you need (see How much cover). If you want some help with these decisions consider using an IFA.

How much will it cost?

Men generally pay more than women. It pays to get cover early, because the older you are when you take insurance out, the higher your monthly premiums will be.

For example, at the age of 29, a £100,000 level-term policy could cost a non-smoking woman an average £8.07 a month and a non-smoking man £9.68. But, at the age of 39, the cost would be £12.44 for a woman and £15.55 for a man.

Smokers

Premiums for smokers can be almost twice as high as they are for non-smokers. Prices can also vary hugely between companies, so it pays to shop around.

For example, a 39-year-old male smoker might pay £45.50 a month for level-term insurance of £100,000 with one company and as little as £23.50 for the same cover with another. In this instance, shopping around could save you as much as £22 a month or £264 a year. That adds up to a £6,600 saving over a 25-year term.

Health issues

Be honest about your health. If you withhold any information, your policy could be invalid and might not pay out.

If you have a pre-existing medical condition you should still be able to get life cover but it may cost more and be harder to find. The Insurance Surgery is a specialist broker that can help find insurance for people with pre-existing medical conditions.

If you have a specific illness, try contacting the relevant charity for advice on life insurance. For example, Cancer Research UK offers information about life insurance for cancer sufferers.

If you already have life cover and are shopping around for a better policy, make sure you keep your existing life cover in force until the new policy is up and running.

A quicker payout

Writing your policy ‘in trust’ means your insurance payout is excluded from your estate. This could save your family having to pay inheritance tax. It also means policy proceeds can be paid without having to wait for probate, so your family will receive the money quickly when it’s needed most.

Most life insurance policies give you the option to write your policy in trust at no extra cost. Just ask for a special trust form.

Two policies may be better than one

Shop around for the best cover – prices vary greatly

Couples can buy a joint policy that covers both lives or can have one policy each. Whether you have one policy between you or one each depends on what the cover is for.

A joint policy for covering the mortgage

If you're covering your mortgage, you want the policy to pay out when the first person dies. You both need cover for the same amount and because the mortgage will be paid off at that point, there's no need for continuing cover.

It therefore makes sense to have a joint life policy that pays out on the first death when specifically covering your mortgage.

Single policies for family protection

However for family protection it makes more sense for couples to have one policy each, for several reasons.

One partner may be younger or fitter than the other, or one may be a non-smoker and so get better rates. It's also likely that each partner may need different level of cover, unless both earn the same salary.

Also, if there are dependent children, a surviving partner will still need life cover until the children are independent. By having only one policy between you this will leave the surviving partner without cover if the first partner dies.

Premiums are based on age and health at the time a policy is taken out and if the surviving partner is older or has health issues at that time, any new cover could be much more expensive, or in severe cases, unavailable.

Buying two separate policies means you can take them out for different amounts (and terms), depending on your personal needs. Both will pay out if you and your partner die within the chosen term(s), whereas a joint policy pays on only the first or last death.

Surprisingly it's no more expensive having two policies instead of one joint one, and can often work out cheaper.

You can find out more about all types of protection policies by visiting the Financial Services Authority's Money Made Clear website.

Contacts

The Insurance Surgery Specialist broker for people with pre-existing medical conditions
Lifesearch Independent financial adviser specialising in protection
Life Assure Online Specialist online independent financial adviser
Unbiased.co.uk To find an IFA

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