Life insurance is easily overlooked, 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 and maintaining 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, which may prompt you to decide to increase your cover so your family would have enough to live on if you passed away.
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 these issues 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. It is prudent to consider the worst case scenario and set up your dependents for their future.
Cover your main debts. Calculate your 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 to estimate the appropriate level of cover. There's no perfect rule, especially when you are trying to predict the future. If you are single you might just want to cover your mortgage, but if you have a family you might want to leave them a nest egg.
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 repayment mortgage. This is where the payout will reduce over time to match the outstanding debt you have on your home. The more you have paid off, the less you need to clear the remaining debt.
Don't accept the rate offered by your mortgage lender. To get a mortgage you will usually need life insurance, 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. You can shop around other providers 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. It's best to consider life insurance with a mortgage but you do not have to take out the policy your lender suggest. Shop around.
So now you know what to do and what not to do when it comes to buying life insurance, compare life insurance policies online to find the right one for you.