Things to Consider Before You Take Out Life Insurance
Anyone with family to take care of should consider life insurance. It can cover the cost of a mortgage, rent or any other expense that would be difficult to meet. This financial security could cushion the family at a time when financial commitments will not be uppermost on the mind. So, if you are aware of the benefits and want to take out life insurance, what should you consider?
When deciding on the policy type that best suits your requirements, you should consider why you need this type of insurance. If it’s needed to cover a mortgage, then you should take out a fixed term policy. The insurance term is fixed in line with the terms of the debt, so you will only be cover whilst the debt exists.
If you want to provide long term financial security for your loved one, then a renewable policy would suit. This type of policy could be kept whilst you need it, so you will always have peace of mind that no matter what happens to you, your family will be financially secure.
The next thing to consider is how much life cover you need. This depends on your personal circumstance and the lifestyle you lead, but to get an approximation of the required amount you should answer three questions. How much money would be needed to cover funeral arrangements? How much would be required to pay off all debts? And how long would the family need the financial cover for? Adding these three figures together will provide you with the value of insurance cover you should take.
Cost of cover
Getting a few insurance quotes will give you an idea of how much life insurance will cost you, but they won’t tell the whole story. Policies are either fixed rate for a fixed term or variable if the policy is on-going. A fixed term policy gives you a set annual price, but it could be more expensive. A policy that increases as you age is normally less expensive in the earlier years than a fixed term premium, so you will have to determine how long the insurance cover is needed before you decide which payment option is best.
Choosing your policy
A life insurance policy provides peace of mind, but how do you know if your money is in safe hands and will be paid out when required? Insuring through a company who are regulated by the Financial Services Authority with membership of the Financial Services Compensation Scheme is the best way to provide peace of mind.
Moving from one insurer to another
Once your cover is in place it can be difficult to move between insurance companies. Any changes in your health could exclude you from new policies or make a new policy extremely expensive, so you need to think long term when you take out cover. You financial situation could change dramatically when you retire, so make sure you budget an amount that’s sustainable.
Other things to consider
The final things you need to ask yourself include, what exclusions exist in the policy that will stop it being paid out? Some common examples include non-payment if the policy holder’s passing is due to alcohol abuse, deliberate exposure to danger or suicide. Another point to question is what waiting period will there be before a payment can be made out? You should also find out if the policy is renewable for life and if there is an option to change the level of cover?
Alternatives to life insurance
Life insurance can provide peace of mind for anyone. Even if you have no debts and no dependant, it can be used to cover funeral expenses. An alternative could be a savings account, but as no one knows when they are going to pass away, life insurance should be used to cover your funeral costs whilst you build up your savings.
David Nealson is a finance journalist who has been recently engaged in research on the insurance industry. He has written a number of in-depth articles on various insurance companies and their products. Check out the latest outlines of Ageas and Sainsbury .