5 questions to ask before you secure life insurance

During the global Convid-19 pandemic, the need for life insurance to protect our loved ones has never been so important. Insurers in the UK and around the world have seen a significant rise in applications.

However, unlike most other types of insurance, life insurance tends to be a long-term commitment.

As a result, it can be daunting when arranging such cover. However, there are a number of questions and steps you can follow to ensure you are making the right decision and not investing in a financial commitment that isn’t right for you.

Answering the following 5 questions can help ensure you have all of information you need to get the right cover, or even whether you actually need cover at all.

Do I really need life insurance?

Upon your passing, life insurance will provide your loved ones with a lump sum pay out. This pay out can then be used as they deem fit, whether that be to pay for your funeral, contribute towards financial instability as a result of your passing, or to simply enjoy as an inheritance.

Generally speaking, anyone with dependants will benefit from some form of life insurance to provide financial protection if the worst were to happen.

This will ensure your loved ones can continue their existing lifestyle and avoid financial disarray as a result of funding your funeral or replacing your lost income.

But is life insurance necessary? Those without dependants or with a particularly large amount of savings, may not see life insurance as a necessity – But that isn’t always the case.

Upon your passing, all of your assets, savings included, will form part of your estate. This amount is then subject to inheritance tax as well as being used to cover any outstanding debts in your name, including your mortgage.

In the UK, inheritance tax is due on any value of your estate over £325,000 and is taxed at a rate of 40%. Therefore, even those considered to be particularly wealthy are likely to benefit from life insurance, even if purely for the purpose of offsetting the inheritance tax due.

How much life insurance do I need?

Upon determining whether or not you actually require life insurance, the next question is to determine how much. This will strongly depend on what it is you are looking to protect. Award-winning UK broker Reassured have built a life insurance calculator which may help you establish the cover amount you need.

The amount of life insurance you secure should be a total of all of the financial outgoings your loved ones are likely to experience if the worst were to happen to you.

This includes the cost of your funeral, any outstanding debts in your name, income replacement, potential inheritance tax (should you wish to counterbalance this) and lastly, any inheritance you wish to leave behind.

Totalling the various aspects most important to you will help to determine the overall sum assured you require when arranging your cover.

What type of life insurance do I need?

There are a number of different types of life insurance policy you can arrange, these include; level-term, decreasing-term, whole of life and over 50s. 

Each type of cover is best suited to protecting different aspects within your life, and therefore, the policy you need will depend on what it is you are looking to cover.

Level term life insurance lasts for a specified period of time and provides a sum assured which remains fixed throughout. It is best suited to protecting outgoings which will not change, such as an interest-only mortgage or lost income.

Decreasing term life insurance, on the other hand, provides cover for a set period of time, but the sum assured reduces over the course of cover. This makes it best suited to protecting a repayment mortgage or other large debt.

Whole of life cover is similar to level-term in the sense the sum assured remains fixed, however, cover lasts for the rest of your life, guaranteeing a pay out. It is possible to pay more into the policy than the overall sum assured. 

As a result, it is best suited to those experiencing favourable health in later life.

Finally, over 50s plans offer guaranteed acceptance to all UK citizens aged 50-85 without the need for medical information and cover lasts for the rest of your life. The sum assured tends to be smaller than the other policy types, making it ideal for covering your funeral costs or for those who are in unfavourable health.

By understanding the various suitability of each policy type, you can ensure you secure the right type to suit your needs.

Can I afford life insurance?

Life insurance starts from as little as 20p a day but can vary significantly between providers. Insurers calculate your monthly premiums based on the likelihood of a claim being made by collecting information regarding your age, health, lifestyle and cover required.

Different insurers will place emphasis of different aspects; therefore, it is essential to compare quotes to ensure you achieve the most cost-effective solution.

The policy types vary also, with decreasing term tending to be the most affordable and whole of life being the most expensive. Therefore, ensuring you obtain the right type of cover can help prevent you from paying more than you need to.

Whether or not you can afford life insurance will strongly depend on your own disposable income, but with prices starting so low, it is likely that most would be able to afford even a small amount of cover.

If your calculations suggest you need a significantly high amount of protection, which becomes costly, you may have to drop the level of cover you obtain. Whilst this may not provide the full level of protection you need; some cover is always better than none at all.

Where should I get life insurance from?

When looking to arrange cover, there are a number of routes you could take; directly from the insurer, using a price comparison website or using a broker. 

Contrary to popular belief, obtaining life cover directly from the provider may not be the cheapest option. Brokers and price comparison sites cover their costs via commission from the provider, therefore, making their services free to you. You can compare quotes, and ensure you are receiving the best deal.

Using a price comparison website is likely to be the fastest process, but due to the long-term nature of life insurance a large amount of detailed information is required. This requires in-depth understanding of the products and a high level of accuracy to ensure your cover is suitable and valid.

Using a broker on the other hand, will allow you to ask questions, have the complicated jargon explained to you, and allow you to compare products as well and providers.

Summary

Answering the above questions can ensure you obtain the right type of cover, the correct amount of cover and receive the best price. 

Whilst obtaining life insurance can be a daunting process, breaking it down into these steps can simplify it and make sure you have the right cover you need to ensure your loved ones are adequately protected financially. 

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