Life insurance is one of the best ways to support your loved ones, even when you can't be there. However, buying life insurance can be a complex process. Finding and purchasing the right policy for your personal circumstances and goals takes planning. In this article, we'll share nine pieces of advice for life insurance buyers. We hope it'll help you avoid the pitfalls and land the best cover for you. Plus, learn why getting expert advice could make all the difference.
A life insurance policy is one of the best ways to ensure financial security for your family if you pass away or are diagnosed with a terminal illness. Having life insurance gives you incredible peace of mind, knowing that even if the worst happens, you've done your best for your loved ones.
Purchasing a life insurance policy doesn't have to be difficult. Here are nine things you can do to make the process fast and easy.
When you buy life insurance for the first time, you'll be confronted with a seemingly endless list of cover options, a lot of jargon and wild variations in price.
While all this may seem challenging, it's worth taking the time to get to know the different types of life insurance policy:
Just like with your home or car insurance, you pay monthly premiums to your insurers. If you pass away or are diagnosed with a terminal illness, your loved ones can make a claim.
Life insurance is a great way to give financial support to the people who matter the most, even when you can't be there.
Before you go through the whole process of purchasing a life insurance policy, you should make sure you don't have one already.
Many people are covered by life insurance through their employer, known as a death-in-service benefit. If you think you may have life cover but aren't sure, contact your HR team.
Just as you would with your car insurance, fire up your favourite comparison website and see what's out there.
You'll see a lot of variations between the different types of life insurance policies available and the different features on offer. You'll also see big differences in price. Life insurance is a competitive marketplace and many insurers try to attract new customers by offering the best cover for the lowest price.
Going through this sequence will help you understand the type of policy you want. It will also help you familiarise yourself with the forms you have to fill in when you make your purchase.
Related guide: Best life insurance companies in the UK
While doing your own research is essential when purchasing life insurance, there’s no substitute for having an expert in your corner. No website can offer financial advice that’s specific to your personal circumstances. For that, you need a financial adviser or insurance broker.
Your financial adviser will sit down with you, go through your current finances and help you work out what you want to achieve from your life insurance. If you go with a broker, they’ll be able to take you through the entire buying process. Often, they will be able to give you an exclusive deal.
If you’re purchasing life insurance because it’s a requirement for your mortgage, your lender might try to recommend a policy. In this case, it’s usually best to politely decline. They’re likely to recommend a policy that pays them commission, not the policy with the best features - and price - for you. Please speak to an expert of your choice, not theirs.
Having an idea of the amount of life cover you need will help you select the right life insurance policy for you. Here are some things to consider:
However, you should also bear in mind that your monthly premium payments will be a new outgoing. Don’t spend what you can’t afford right now.
We’ve talked about term life insurance in Tip 1. But did you know there are three types of term life insurance policy you can choose from?
Insurance providers use a range of factors to calculate the monthly premiums on your life insurance policy. These include:
However, do not be tempted to be anything other than completely honest when applying for life insurance. For example, don’t tell your insurer you don’t smoke when you actually do. If you pass away and your insurance company discovers you lied on your application, it could jeopardise your payout.
When you first take out your life insurance policy, you need to be aware of inheritance tax.
In most cases, if you pass away, your life cover payout is considered part of your estate. This means it counts towards your inheritance tax allowance and could be subject to a 40% levy.
However, if you get your policy ‘written in trust’ when you first take it out, it will not be considered part of your estate - and not subject to tax. Your loved ones will be able to realise its total value. All it takes is filling in a few forms.
This is another reason that it’s essential to talk to a financial advisor before you purchase your life insurance policy. Tax law is complex and you need to get professional advice.
Once you’ve bought your life insurance policy, that’s not necessarily the end of the task.
As you go through life, your circumstances may change. You could have children, move to a new family home, start a business or anything else. When those life events happen, your life insurance needs may also change.
For these reasons, it’s a good idea to keep a close eye on your life insurance policy. Review your policy regularly to ensure you have the right level of cover, that there are no other beneficiaries you’d like to add, or that there’s nothing else you need to change.
Your insurance company will normally be happy to make any changes you require. There’s also no legal limit on the number of life insurance policies you can hold, so you’re always welcome to purchase a new policy if you need to.
Related guide: Can you have more than one life insurance policy?
Life insurance is an effective way to support your loved ones financially if the worst happens.
However, with the wide range of life insurance options on offer, it can be confusing to find the right type of policy for your needs. With the right amount of planning, selecting the right life insurance policy can be a breeze. It’s also great to have an expert broker or financial adviser in your corner.
Follow our nine tips and you’re sure to reap the rewards.
Impartial guide: Our impartial guide to private health insurance
Related guide: How much does private health insurance cost in the UK?
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Mike is a personal finance copywriter who has written for numerous financial services publications and websites over many years.
