Things to Consider
- Definitions: Don't mistake terminal illness with critical illness. Terminal illness is typically bundled in with a life insurance policy so that if you have been given twelve or less months to live then the policy will pay out. This is not the same as critical illness which is more often than not an additional extra. If you do decide to take critical illness as part of your life insurance cover then make sure that you are comfortable with the number of critical illnesses it covers and your insurer's definition of each critical illness.
- Flexibility: Is the policy flexible, and if not is this important to you? You may need to increase or decrease the level of cover that you have (maybe because you are moving to a bigger house and are increasing the mortgage), maybe you have a higher salary now and your life insurance pays out a family income which you need to raise. You also need to think about whether you have the option to increase or decrease the term, and if you do, whether you need to give further medical evidence at this point or not.
- Protection Value: The amount of protection you require will vary depending on how you intend it to be used, what you intend to use it on and for how long. It is recommended that you use your current salary as a base guide from which to establish how much total cover you wish your policy to provide. Somewhere between 10 and 25 times your current salary could be appropriate as a lump sum figure.
- Cost of Premiums: Check whether your premiums can go up and, if so, when? Some are guaranteed for the lifetime of the policy but many are reviewed every year or at fixed times throughout the lifetime of the policy (say every 5 years) and, consequently, could increase.
- Joint Policies: Remember that even though a joint policy is cheaper than two separate policies, often the joint policy only pays out once upon the first death. This may mean that the surviving policyholder will need to take out (or buy back) a new policy which, if in later life, may well be more expensive.
- Life Insurance and Savings: Some policies are tied up with savings plans - general advice is to keep them separate but if you decide not to bear in mind that it needs to be compared not just with other like-for-like insurance policies, but also banks/shares/other financial saving plans when looking at your return on investment.
- What if I change my mind? Don't forget that with all policies you will have a cooling off period. This gives you the time to double check the terms and conditions, ensure that you have made the correct decisions based on your circumstances and requirements. If for any reason you change your mind, the companies are expected to give you the ability to do this. The cooling-off period is normally somewhere between 7 and 30 days.
General Warnings
Always check the specifics for each policy, but general warnings on life insurance are:
Remember that most fixed term policies do not actually have any cash-in value so if you have been paying your premiums for the past twenty years and are still alive and fighting fit when the policy ends you still won't be entitled to anything.
If you stop paying your insurance then it is effectively cancelled. For example, if you have been paying your premiums for eighteen years on a twenty year term and then miss a few payments - your insurance company will not payout if something happens to you. Also, if you end up having to take out a new policy the premiums could be much higher as you are effectively eighteen years older than when you first took the policy out.
Always check the T&Cs for policy 'no-payouts' - examples include non-payout if the death is caused by drug abuse or if the insured did not follow medical advice.
Always read the T&Cs if you feel that you have a high-risk occupation or hobby. Most insurers exclude certain occupations/hobbies but you would specifically need to check as these vary between insurers. Your policy may not payout if you were undertaking a dangerous sport at the time of death.
Always answer every question truthfully when taking out the policy -this can be known as non-disclosure if you fail to do so and can result in non-payment.
Remember: the longer you leave getting life insurance, the more costly it will be for you.
Don't forget to review your policy every year as your needs will change and so, undoubtedly, will the economy.
To compare life insurance policies from leading UK providers please click here.
Author: KYM Editor
knowyourmoney - company information
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