Ensure you're avoiding the common pitfalls while following the best practices before you choose which life insurance to buy or even think about changing your current life insurance policy.
Life insurance is the sort of thing you might know is important, but it also might slip your mind. After all, you may not want to dwell too much on the situations where you would actually need it. But if you have people in your life who depend on you financially, it's sensible to plan for the unlikely situation that you may not be able to provide for them in the future.
Finding the right life insurance policy can be confusing, so we've put together a selection of life insurance tips to help.
Regularly review your life insurance policy
and amend it if your circumstances change. Examples could be the birth of a child, a change in occupation, or an increase in your debt. The last thing you want in an emergency is the claim being denied because something was not disclosed to the insurer.
Be completely honest in your application. If you are a smoker you will pay more than a non-smoker. Younger people will pay less for their policy than someone who is older. There's no way to get around that and you don't want to jeopardise a payout because you were trying to save a few pounds on a monthly insurance premium.
Hope for the best, and plan for the worst. Your life insurance will only kick-in after you are gone and will only benefit people other than yourself. This can be a very morbid situation to think of, but it is prudent to consider the worst case scenario and set up your dependents for their future. Hopefully it will be a very long time before anyone needs your life insurance, but you never know exactly what the future will bring.
Cover your main debts
and outgoings, from mortgages and loans to outstanding credit card debts. If your regular expenses increase significantly, you may wish to increase your life insurance. For example, if you decide to renovate your home and take out a large personal loan to cover the works, your life insurance should cover this until that personal loan is repaid.
Try and estimate the appropriate level of cover. There's no perfect rule, especially when you are trying to predict the future. Ten times your annual salary is a good place to start.
Put your life insurance policy in trust
. This ensures that any pay-outs made on your life insurance policy will not be subject to inheritance tax. You only need to fill in a few forms and it's completely free. Your life insurer can guide you through this process.
Snap up a good life insurance deal if you see one. When it comes to the price of the best life insurance policies, age works against you, so it's typically cheaper to buy life insurance when you're younger. However, make sure you fully understand the policy you are signing up for. Be aware of any additional fees that might actually make that lower premium less attractive.
Be aware of the length of your insurance term. Some life insurance policies last for 'whole of life', meaning your entire life, while others are only a fixed period and will not pay out after that period ends.
Consider a decreasing life insurance policy if you have a large mortgage. This is where the payout will reduce over time, which could be a good idea if your main expenses like mortgage repayments will also decrease over time.
Don't accept the rate offered by your mortgage lender.
Often people ask if they need life insurance to get a mortgage. To get a mortgage you will usually need life insurance if your children or partner rely on your income to pay the mortgage; however mortgage lenders can offer overinflated prices. Get your life insurance policy separately and make sure you find the lowest price you can.
Don't forget to factor in future costs.
When calculating how much life insurance you need, don't forget to factor in your children's school fees, potential university fees, home improvement costs etc. But try not to overestimate, as this can result in higher premiums.
Don't be afraid to change your insurer if you are unhappy with the product, or the service you receive from them.
If your premiums are increasing faster than you think is reasonable, you can shop around for other deals to have a better understanding if your deal is a good one. If you do decide to change insurers, ensure you are covered at all times, and be aware if there are any waiting periods on the new policy.
Don't underestimate the value of a stay at home parent.
Legal & General released a report revealing that replacing the work of a full-time mum can cost upwards of £32,000 a year.
Don't buy joint life insurance if you don't need to.
It used to be the case that it was significantly cheaper to take out a joint life insurance policy with your partner. However in some cases this is no longer true, so it may be worth looking into two separate policies. This way, if one policyholder dies, the other policyholder can keep their policy. Effectively, this means that you get double the cover for your money.
While life insurance is not a legal requirement for a mortgage in the same way that car insurance is needed before driving a car, many lenders will not let you borrow without it.
In the event that you die before the mortgage is paid, then those still living in your home will be covered by the life insurance – otherwise, your home could be repossessed, so it's perhaps better to consider life insurance with a mortgage anyway.
So now you know the dos and don'ts of buying life insurance, compare life insurance policies online to find the right one for you.