Insurance is a feature of modern life that affects virtually everyone. Some insurances are legally required, such as car insurance. Driving without it is an offence so if you want to drive you have no choice. If you’ve bought a home with a mortgage loan then your lender will make it a condition of the loan that you have buildings insurance to cover the cost of repairs or, in the most extreme cases, rebuilding. The lender has rights to your property and money invested in it, so they will insist on you paying to protect it.
Most other types of insurance are optional, such as holiday insurance and medical insurance. Going without the former exposes you to risks, but some people calculate that these are risks worth taking. Going without the latter doesn’t affect your entitlement to healthcare but it does mean you are completely reliant on the NHS. When you take out buildings insurance on the instruction of your lender you will probably add contents insurance to it, to protect your belongings from theft or damage.
One thing that practically all these forms of insurance have in common is that they are renewable, usually every year. Most insurers will send you a notification to let you know that your policy is due for renewal, adding that you don’t need to take any action and the policy will renew automatically. They rely on you not to query it.
However, since the rise of price comparison websites, many people have got used to the idea of shopping around for better deals, not just for gas, electricity and broadband but for every kind of insurance under the sun. All the experts advise you to look for bargains as the renewal date approaches because in such a competitive market there is almost always someone prepared to give you better terms, a lower price, or both. Even if you decide to stay put, you can use the improved offer as leverage to get a better deal from your existing insurer.
Why Treat Life Insurance Differently?
This is a good question. Life insurance is essentially the same as any other insurance but people tend to view it differently because of its long-term nature. It is often viewed as being more like a pension, that accrues value over the years, but this is not true. People also believe they have to let the policy run to its full term. Others fear they might lose benefits if they cancel and switch. None of these is a good reason not to consider switching. It may be called life but doesn’t have to stay the same for life. Provided that you avoid any early cancellation fees, usually within a year of the start or renewal, you can switch without losing out. And as your life and circumstances change, there are many persuasive reasons for switching. Some of them may be to do with getting a cheaper deal, but most of them will be about finding a policy that adequately covers your new situation. Here are just 7 of the most important ones.
Buying a property is probably the biggest financial transaction you’ll ever make. Not only is it your home, it is also an investment. While savings interest rates have been low for years and the stock markets have been uncertain, property has continued to increase in value. But as every single mortgage agreement tells you, your home is at risk if you do not keep up the mortgage repayments on it. In certain circumstances – some of them surprising – your lender can simply take your home away from you. That’s why it is absolutely essential to make sure you have adequate provision to meet increased payments or to pay off the whole sum outstanding if your situation changes. Life insurance is an excellent way to provide security so when you are planning to buy for the first time, you should look at your life insurance cover and make sure you increase it as necessary or find a new deal that will meet your new needs. If you’re selling up and buying your next home, you should do exactly the same thing.
Marriage & Divorce
One of the biggest changes in life comes when you get married. Immediately your financial situation becomes connected to that of your partner and you are now reliant on each other. Life insurance that might have seemed perfectly sufficient when you were single will now need to be thoroughly reviewed. Nobody wants to think about death, especially not when you’re embarking on an exciting new journey as a couple, but planning for the worst not only gives you peace of mind in the present but guarantees financial security for your partner in the future, should the unthinkable happen. A generous life insurance policy that pays out to your spouse in the event of your death will never soften the blow of their loss, but it will make the ordinary business of life much easier.
Conversely, if your marriage doesn’t survive and ends in divorce you may decide that along with disentangling your existing finances, you want to change not just the beneficiary of your life insurance but also its scale. If you have joint life insurance, this may be even more pressing.
Whatever your marital status, single, married, divorced or even widowed, if you have a family, parenthood is one status that will never change. When you first have children, making plans about your own death may be far from your mind, but this is precisely the time when you should be exploring measures that will help give your children a sound financial future. When they are young the prospect of losing a parent makes this the time when they are most in need of that security. Estimates say that 41,000 children in the UK lose a parent every year.
Once your children have grown up and become financially independent, you may feel there is not the same need to provide for them so you could think about reducing your level of cover and hence your premiums. Some insurance policies feature benefits specifically related to children but will expire once they reach a certain age, so this should be reviewed as well. Of course, you may simply wish to continue as before, but there is no compulsion to do so and every reason to reassess.
It is virtually impossible to live in the modern world without accruing some form of debt. Probably the biggest you’ll ever take on is a mortgage, which we’ve already looked at, but debts come in many guises. Car finance, home improvement loans, credit cards – these are just the most obvious examples. What is important to remember is that should you die, your debts do not die with you. Those left behind who are closest to you will probably have to pay them off instead, if not from your estate then from their own funds. Life insurance is the perfect way to relieve them of this burden so as you progress through life, you should always consider keeping your level of life cover aligned with the size of your debt. If your family should lose you, the bereavement is more than enough for them to cope with. Don’t leave them with your financial responsibilities as well.
Jobs & Retirement
It’s very tempting to treat life insurance as something that is always in the background, stable and permanent. But we’ve already seen many ways in which its value and purpose can be affected by changes in your circumstances. This is equally true in the context of your employment. The job you do is likely to be your main if not your only source of income. Your income tends to influence your lifestyle, spending power and priorities. If you change your job for a better paid one then your increased income ought to be matched by an increased life insurance provision. If you should lose your job for any reason then you might feel unable to maintain your current premium level and could consider reducing your cover. This ought to be a last resort, because it is unwise to put short-term convenience ahead of long-term security, but sometimes it will be unavoidable. If anything, you should increase your cover, but this simply may not be practical. At least you should keep the affordability of your insurance under review.
In many jobs, life insurance might be among the benefits you receive along with a salary and pension plan. If you leave that job you should do everything possible to replace those benefits with a new policy of you own or by changing your existing policy accordingly.
It’s a good idea to factor your retirement plans into your life insurance arrangements. Once you retire, you may feel that you can make do with lower cover so this is another good time to revaluate your needs. Some life insurance policies will allow you to borrow against the insured sum to help fund your retirement, so that should be taken into consideration.
One of the most difficult things for your loved ones to deal with after your passing is the complicated and costly business of inheritance tax. Money and property you hoped to leave to them becomes subject to taxation which can make any bequests more trouble than they are worth. There are ways to minimise this but they generally need to be put in place many years ahead of time to be legally effective.
In some circumstances, even your life insurance can be subject to inheritance tax so it is important to work out your liability as far in advance as possible so you can make sure your level of cover will be enough to cover the whole of the inheritance tax bill on your estate. The current rule is that the first £325,000 of a person’s estate will not attract any tax, but anything above this threshold is taxable at 40%. There are some exemptions to this, but broadly speaking it is wise to arrange sufficient cover to relieve your beneficiaries of this heavy burden.
The benefits offered by insurance companies change all the time. For example, many of the biggest insurers attract new customers by offering benefits that help with health and well-being, such as priority access to GP appointments and related services. If you stay with the same insurer for any length of time, the likelihood is that you simply won’t be aware of the new opportunities that have become available. This will apply to other companies but it could be true of your own. An insurance provider has no reason to offer you extra benefits if you are an existing customer who appears to be perfectly happy with your policy as it is. Your silence is taken as acceptance when the truth is probably that you simply have no idea as to what you could be getting. You’re free to investigate this at any time and then when your policy is ready for renewal you will have a very clear idea of what you should be asking for. If your existing insurer already offers these extra benefits to newer customers, you can demand the same treatment and if they don’t give it to you you’re free to switch to a company that will.
These are just 7 very common reasons to consider changing your life insurance. Switching to a new policy or provider can sometimes involve meeting new criteria regarding your health, occupation and general circumstances. If any relevant conditions declined over time then you should bear this in mind when shopping around, but it’s just as likely that lifestyle changes will lower your premiums. Giving up smoking, for example, can almost halve the cost of life insurance. Similarly, if the cost of an existing policy was increased because of your ill-health but you have now recovered, you should expect to see a substantial reduction.
Remember that life insurance is a business, and a highly competitive one. Sometimes the rates of life insurance fall simply because of the pressure of competition in the market. Even if you do happen to have a very good policy at the moment, you should never assume it. Always be alert to the strong possibility that a better deal can be found, and one that suits your constantly changing circumstances. Find the policy that works best for you right now, and when it stops working, change it.
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