Top 10 questions to ask before buying life insurance

May 20th, 2022
Top 10 questions to ask before buying life insurance

The purpose of a life insurance policy is to protect your loved ones should the worst happen. But if you buy the wrong life insurance policy, you may waste money on monthly premiums for a policy that either isn’t suitable for your needs, or is excessive in terms of protections. The wrong choice could create the risk of leaving your loved ones with an inadequate safety net at the time that they need it most. So before buying life insurance, you need to ask yourself these ten questions to ensure that the policy you buy is adequate and appropriate for your needs.

1. Do I Need Life Insurance?

If you’re one of the 60% of Brits [1] who don’t currently have a life insurance policy, the first question is one you’ve probably already asked yourself – whether you actually need life insurance at all. If you own your home outright, have a substantial savings pot, no debts or no dependents, then you probably don’t need a life insurance policy, as the purpose of a life insurance policy is to allow your nominated dependents to live as normal a life as possible after your passing.

If however, you have a mortgage, other people depend on your income, you have debts or only minimal savings, then a life insurance policy may be a sensible idea. In fact, some mortgage companies require you to have a life insurance policy in order for them to approve your mortgage as this reduces their risk in taking you on as a client. If this is the case, make sure that the policy you choose satisfies the conditions set by your mortgage provider.

2. What Sort Of Life Insurance Do I Need?

It is important to know why you are considering life insurance as this will determine the type of life insurance cover that you buy.

One of the things to consider before buying life insurance is who would benefit from your life insurance policy should you die. If your spouse and children would receive the life insurance payout, would they need the money in a single lump sum, or as a monthly income?

Is there a certain period after which you would no longer require life insurance? If in ten years time, your mortgage will be paid off and your children will have finished university, would you still require insurance? If so, a term life insurance would be appropriate to consider. If however, you wish for your dependents to receive a lump sum payout at any point in the future then you would need to consider whole of life insurance instead.

3. How Much Cover Do I Need?

Every individual’s situation is different and taking out the wrong level of cover could either result in you paying more than you need to in premiums, or in your loved ones receiving an insufficient payout. Therefore, it’s very important that before you start to consider what policy to choose, you know how much money you would actually need the policy to pay out.

There are a few approaches that people take in determining the level of cover they need, for example adding a “0” to their annual salary (so a £35000 salary would equate to £350000 cover) or multiplying their salary by their number of remaining working years, but perhaps a more pragmatic approach is to carefully cost out your debts, income, mortgage and childrens’ educational needs and use this as a baseline.

To do this, you need to total up all debts other than your mortgage, multiply your salary by the number of years that you believe your family will need your income (as a minimum, as long as you will have children living at home), use your last mortgage statement to determine the amount outstanding and work out the cost of sending each of your children to university, factoring in accommodation, books, and so forth. Added together, this total would be a sensible amount to insure for. A DIME calculator [2] may help you to determine this figure.

When considering the amount of cover that you need, you should also consider whether you already benefit from a life insurance policy through your employer. If you are part of a group life insurance scheme at work and have no plans to leave the organisation, you can reasonably safely deduct the amount of that payout from the total you calculated above, and only insure for the difference. This would allow you the same amount of overall protection but with lower monthly premiums.

4. How Much Can I Afford To Spend In Premiums?

Whilst life insurance is designed to provide peace of mind and financial security for your family in the event of your demise at some point in the future, it also needs to be affordable in the present. It is never worth insuring yourself against some unexpected future event if it means you and your family cannot afford to make ends meet now.

Based on your income and current expenditure, you should be able to calculate how much money is “left over” at the end of each month, and from that figure, determine what percentage of it you are willing to spend on a life insurance policy. Make sure when calculating this figure that you are comfortable with the amount as if you spend all of it on a life insurance policy, it will not be available for other unexpected expenditure which may arise.

When you use our life insurance calculator, you will receive a call from a specialist advisor who will discuss your requirements with you, comparing policies from the whole of the market to help you choose the most appropriate one for you. By letting the advisor know what you can afford to spend on monthly premiums, they will be able to narrow the search to only companies and policies which fit your budget and other criteria.

5. What Information Do I Need To Provide?

Some life insurance companies will require your medical history and maybe even the results of a medical examination by a GP in order to provide you with cover. Others will not. Often this depends on your age and lifestyle as a young non-smoker will be considered lower risk than an older person who does smoke. You should also expect to pay a higher premium if you are employed in a risky profession, or regularly participate in dangerous hobbies.

If you are concerned that you fall into a high-risk category, it is worth discussing your individual requirements with a specialist advisor who will be able to support you and advise on the best policy for your needs.

6. Could I Change My Policy In The Future?

We know that life moves fast and individual circumstances change all the time. You could move jobs, move house, get married, have children, get divorced or even come into an inheritance and all of these things and more could affect your need for a life insurance policy.

If you anticipate major life changes occurring within a defined time period, one option would be to take out a term life insurance policy for that period and reassess at the end of it. If you prefer the certainty of tying in for longer, with either a longer term or a whole of life policy, then each policy’s terms and conditions will be different and it is important to discuss the likelihood and scale of these changes to the policy in the future with the life insurance policy provider before accepting the policy.

Many life insurance policy providers will allow you to review your policy and make any necessary changes every 12 month months and if you move house, or develop a critical illness, you will need to let your life insurance provider know straight away. Failure to update this information may result in the policy being null and void in the event a claim is made in the future.

7. How Do I Make Sure I Choose A Reputable Company?

Free Price Compare is partnered with Life Search who are the UK’s largest and most trusted life insurance broker. We compare the whole of the market and are authorised and regulated by the Financial Conduct Authority to ensure your total peace of mind. Life Search are rated “Excellent” on Trust Pilot with over 19,000 reviews [3].

8. Should I Add Any Extras To My Policy?

Some life insurance policies offer extras, such as critical illness and terminal illness cover. These are designed to pay out a lump sum should you develop one of the pre-agreed conditions covered by the policy.

If your family depends upon your income and you were unable to work due to a critical and debilitating illness, and there is a possibility (perhaps based on family history or other lifestyle factors) of you developing such a condition in the future, then you may wish to consider adding one of these extras to your policy. They will increase the price of the premiums but if this provides the necessary peace of mind without rendering the policy unaffordable then it may be a worthwhile investment.

9. What Exclusions Could I Not Live With?

Some life insurance policies may place exclusions on your policy, either as part of their standard terms and conditions or based on a personal risk assessment. Some situations that result in death [4] may not be covered by the life insurance policy so it is important to consider what instances would result in the insurance policy being void, and if any of them concern you, discuss them in greater detail with the insurance policy provider before taking out the policy.

10. When Will My Policy Start?

Your life insurance policy will be effective immediately, however, many will have an exclusion meaning that they won’t pay out the full amount should you die within the first year or two of the policy’s life. If this is a concern, please discuss it with a specialist financial advisor or the policy provider before you take out the policy.

There is much to consider when taking out a life insurance policy, but by asking yourself these questions, you stand an excellent chance of buying the right policy for you, minimising unnecessary risk and expenditure and providing a safety net for your family in the future.

If you are concerned about your family’s finances but don’t think a life insurance policy will help, there are organisations available to help, such as the Citizens Advice Bureau [5] and the Money Advice Service [6]. There are also many Debt charities such as StepChange [7] who are available to help with support and advice.

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