Protect your loved ones with Life Insurance

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• 1. What type of life insurance policy you want – Level cover or decreasing cover (also known as mortgage protection cover)
• 2. How much cover you require – When deciding how much cover you need, consider your current debts (mortgages, car finance, loans etc) and dependents
• 3. Cover length – You can choose cover length from 10 to 50 years.
• 4. Additional cover – You might want to add critical illness cover, some policies do include critical illness cover as standard, but this tends to be at 20% of the policy cover amount, for the full cover you will need to add this separately.
• 5. Joint or single policy – You might want to consider a joint policy if you have a partner or want to take out policy with a family member.

No. Life insurance and mortgage insurance are two different types of policy and it is important to understand the differences between them in order to ensure that you select the policy that is most appropriate to your individual circumstances.

Life insurance. There are many different types of life insurance policies available and they are designed to provide financially by way of a cash payout for your family and loved ones in the event of your death. By determining the level of cover that you require and the period most appropriate for you, a life insurance policy can do everything from paying for your funeral fees to paying off your mortgage or leaving an inheritance.

Many people choose a life insurance policy on a declining term basis, in order that the payoff reduces annually in correlation with the shrinking of their mortgage, ending at the same point that the mortgage is fully paid off. This is a way of safeguarding loved ones from having to deal with a large sum of debt should the person insured pass away during the term of the policy when there is still a considerable sum outstanding on the mortgage of the family home. Otherwise, the surviving family members may be unable to afford the payments without the income of the deceased. With this type of cover, if the person insured is still alive at the end of the term, the policy does not pay out.

Mortgage insurance. Often referred to as mortgage payment protection insurance, this is a policy that will cover your mortgage payments in the event that you find yourself unexpectedly out of work or, due to injury or illness, unable to work. Mortgage insurance is different to general income protection insurance in that it will only pay out up to 125% of your monthly mortgage payments or 50% of your monthly salary, whichever is greater, so is unlikely to be able to fully fund all of the outgoings that you are responsible for and would continue to need to pay in the event that you were out of work. For this reason, this type of policy is popular with couples who both earn an income and can supplement each other to a certain level in times of hardship.

There are different options for mortgage insurance and it is up to each individual to determine which is most appropriate for them, based on their personal circumstances and risk appetite. The most basic policy only covers you for unemployment if you are made redundant. The next level provides cover should you suffer a long-term illness or a serious injury which prevents you from working. Finally, the most comprehensive option covers redundancy, accident and illness. All mortgage insurance policies have a waiting time before you are able to claim and generally, the longer the waiting time, the cheaper your monthly premiums will be, however, it is important to ensure that you have sufficient savings or other sources of income to continue to pay your mortgage until such time as the policy begins paying out.

In short, the critical difference between these two policies is that life insurance only pays out in the event of your death, whilst mortgage insurance will pay out should you be unable to work, provided that the reason that you are unable to work is covered by your chosen policy.

If you cancel your life insurance policy, your cover ends and should you pass away after cancelling your policy, the insurance company will not pay out as there will be no valid policy to pay out against. If you choose to cancel your life insurance policy during the cooling off period - usually the first 30 days from taking out the policy - you will receive your premiums paid to date back as a refund.

If, however, you cancel your policy after the cooling off period has ended, you will not be entitled to any refund on premiums paid and there may be an admin fee to pay as well. This varies depending on the provider, so it's something to check before deciding to cancel your insurance policy for cost-saving reasons.

The only exception to this rule is if you have a whole of life or permanent life insurance policy and have held it for a significant period of time (usually more than ten years). In this instance, you may have accumulated sufficient cash value that your insurance policy provider may be able to fund your premiums for a time, saving your money on your monthly payments without sacrificing your cover. Alternatively, your provider may offer you a surrender value, giving you some money back in exchange for cancelling your cover.

In order to get a definitive answer as to what your specific outcome would be should you cancel your insurance policy, you will need to speak with your provider.

When you take out a life insurance policy, you will be asked to nominate a beneficiary for your life insurance policy. This person could be your partner, child, other family member or a friend. It is up to you to select the person that you wish to receive a payout in the event of your death and to tell that person that they are your beneficiary as they are responsible for raising the claim in the event of your death. If you do not wish for them to know that you have nominated them as a beneficiary while you are alive, you should ensure that it is recorded in your will so that they will be notified of the fact after you have passed away and be able to raise the claim and benefit from your policy.

Most people choose their partner or children to be beneficiaries on a life insurance policy in order that their surviving family members are able to continue to fund essential outgoings such as mortgage or rent payments and other bills and to continue to enjoy the quality of life that they are used to once the insured is no longer with them and contributing to the family finances.

This information will be available as part of your life insurance policy paperwork and most insurance companies will allow you to change your nominated beneficiary for a small fee at any point during the term of your policy, should you change your mind as to who you wish to benefit, or should your personal circumstances change.

Electing to take out a life insurance policy is always a personal choice and a key consideration is whether someone that the insured provides care or support to would require financial assistance in the event that the insured were to pass away. If a single person supports an elderly parent or relative, or has children that they are raising on their own, it is likely that a life insurance policy would provide them with peace of mind that those people would have sufficient funds to continue to live their lives in the manner to which they had become accustomed should the insured die during the term of their policy.

Single people who run a business or are part of a business partnership may consider taking out a life insurance policy, either as a requirement of a business loan, or to provide financial certainty for business partners or family members who may require this money to maintain the business should the insured pass away with financial responsibilities that may otherwise not be covered.

On the other hand, a single person with no dependents and no debts or significant outgoings such as mortgage payments may decide that there is little benefit in taking out a life insurance policy as they have nobody to benefit from the payout in the event of their death. The exception to this would be if they were planning for the long term and saw the benefit in taking out a life insurance policy while they were young, healthy and unencumbered by debt and additional responsibilities.

Whilst many people choose to take out a life insurance policy in order to ensure that their families are not left with an unaffordable mortgage to pay for in the event of the insured's demise, owning a home is not a prerequisite to taking out a life insurance policy. There is benefit in anybody who has people who are financially dependant on them having a life insurance policy in order to provide for those people should they pass away.

This is especially important for people that do not have savings, investments or close family to rely on and whose dependents would risk being made homeless if the main or sole wage earner in the family were to die.

Calculating the cash payout for a life insurance policy should take into account an individual's personal circumstances and it is likely that a lower payout would be acceptable for someone who doesn't own a property on a mortgage, as they could elect to base the payout on their income over the course of a year or more instead, allowing their dependants financial security for a predetermined time, during which they would be able to find paid work to replace the lost income. Circumstances may have already changed, for example, a reduction in childcare costs from young children starting school or older children finishing university and getting jobs. Calculating the required payout on this basis is also likely to result in cheaper monthly premiums, which may make the decision to take out a life insurance policy more attractive.

A "no questions asked" life insurance policy is also known as guaranteed life insurance, as anybody who can afford to take out such a policy will be eligible, regardless of their age, medical history and occupation. These types of policy generally have a lower payout and higher monthly premiums than an ordinary life insurance policy but may represent a good choice for people in risky occupations with low personal savings who wish to ensure that their dependents are financially secure in the event of their death.

It is worth noting, however, that although no questions are asked at the outset, payouts will only be awarded should the insured die as a result of a condition or event that is covered by the policy. For example, the nominated beneficiary of someone who is chronically depressed and suffering from mental health issues who chooses this policy on the basis that they do not have to answer medical questions will not be eligible for a payout if the cause of their death is determined to be suicide as this is an exclusion across many life insurance policies.

For someone who works in a low-risk occupation, has no or reasonably few existing medical issues and is under 50 years old, a standard policy is likely to provide greater protection at a significantly lower premium, so it is always worth comparing the level of cover and the monthly price of a variety of policies before selecting a guaranteed life insurance policy simply to avoid the need to answer medical questions at the outset.

If you are over 50 years old, you become eligible for an over-50s life insurance policy which provides whole of life cover at a fixed monthly cost, again without the need for a medical examination. This operates in a similar way to a guaranteed life insurance policy so it would be sensible to compare both options in order to select the one that offers best value for money and the right level of payout for your personal circumstances.

What is the application process for life insurance and what information do I need to give?

The application process for taking out a life insurance policy is simple. You need to choose the type of policy best suited to you. Do you want a single or joint policy, and do you need whole of life insurance that guarantees a payout on your death, regardless as to when that happens. Alternatively, do you need financial certainty for a defined term - for example, while you are paying off a mortgage or while you have dependent children at home? If you choose a term life insurance policy, you will need to decide whether you want a level term policy where the payout remains the same for the whole of the policy, or a decreasing term where the payout amount reduces annually in accordance with a reduction in outstanding mortgage payments or correlating to a reduced requirement to pay for childcare and other necessities.

Once you have selected the term of your policy, you need to decide the payout amount that you would require from the policy. In most cases, this is calculated based on your outstanding debts and financial commitments and potentially includes a buffer based on your salary for a predetermined period to ensure that your beneficiaries would be able to maintain their lifestyle should you no longer be there to provide for them. This is a vital step of the application process as setting the figure too high could result in unaffordable monthly premiums whilst setting it too low could leave your loved ones in financial difficulty in the event of your death.

You will need to answer a number of questions about your health, occupation and lifestyle when taking out a life insurance policy, unless you have opted for a guaranteed life insurance policy. These will include whether you smoke, drink alcohol or take recreational drugs, have any pre-existing medical conditions, your height and weight, hobbies and fitness level and your income and outgoings, including mortgage and debt repayments. The answers to these questions will allow the insurance provider to determine the level of risk that you pose to them and will aid them in determining the level of cover that they can offer you, and the price of your monthly premiums to provide that cover.

Once you and the insurer are happy that all information provided is accurate and that the monthly premiums are affordable, you will be able to take out the policy, which will only end when cancelled by you or in the event of your death.

As life insurance is a personal choice, not a mandatory requirement, nothing terrible will happen to you or your family if you die without having taken out a life insurance policy.

It simply means that your family and dependents will not benefit from the cash payout associated with such an insurance policy and that instead, they will need to self-fund your funeral and either draw on savings or other income such as their own salary or a [1] spouse pension if applicable to manage day to day expenses and financial commitments without your contributions or use an inheritance left to them in your will to continue to maintain their lifestyle and expenses.

There is no legal limit to the number of life insurance policies that any individual can hold and it is quite common that somebody who has a limited amount of life insurance provided via a workplace group life insurance policy may choose to "top up" their personal level of cover by also taking out an individual life insurance policy to ensure that their family would be adequately provided for in the event of their death.

Others may choose to set up multiple life insurance policies to cater for different outcomes, for example, a declining term life insurance policy aimed at clearing their mortgage and any outstanding debts, with another whole of life policy with a payout amount designed to provide financial security for their dependents. They may choose to have multiple life insurance policies with a different nominated beneficiary on each, should they choose to use this method to leave a legacy or inheritance due to a lack of personal savings.

There are many reasons why someone may choose to hold multiple life insurance policies, but it is always sensible to consider the reasons for doing so, as it is likely to be more cost-effective to hold only one policy that caters for the most likely eventuality with a carefully determined payout amount and term based on your personal circumstances.

In the event that your application for a life insurance policy is declined, you should find out the reasons for it. Many providers have different acceptance criteria, so by understanding why your application has been turned down, you will be able to target a different company with different criteria, or seek a quotation for a guaranteed life insurance policy where no questions relating to health or lifestyle are asked.

Just because one company has turned you down does not mean that they all will, and it is very likely that you will be able to take out a suitable policy with a different provider. It is worth noting that a company that has more flexible acceptance criteria may be more expensive, so if the reason for your rejection relates to a health or lifestyle issue that you are willing to address, you may be able to take out your preferred policy in the future once this issue is no longer relevant. In this instance, it will require you to make a risk-based decision to either wait for the necessary timeframe to submit a new application with the original provider without any life insurance, or to take out a short term life insurance policy with a more flexible provider until such time as you can re-apply.