Life insurance is one of the best ways of protecting your loved ones and making sure they have all the financial support they need after your death. That includes partners, children and anyone who depends on you financially. Even if they have resources of their own, you might feel it’s important to provide extra help. A life insurance policy can provide enough to pay off an outstanding mortgage, leaving your partner free of that burden. Or it could provide enough for a substantial deposit on a home for your adult children.
There’s no limit to what it can give to those you leave behind. And it is something which almost anyone can take out, which means it can be far more valuable than an inheritance. When you die your estate might not amount to a great deal, but an insurance policy payout can be as generous as you can afford to make it over the course of your lifetime.
Getting the right life insurance policy isn’t straightforward because there is so much choice and policies can vary considerably. Before you commit to any policy, you need to understand the implications of all the terms and any exclusions. You can study page after page of legal clauses but it still might leave you unsure of exactly what it all means. Insurance policies are not always easy to decipher. If that’s the case, you shouldn’t hesitate to ask the insurance company to explain anything that is unclear to you.
But before we answer the question ‘what should I ask a life insurance company’ you need to answer this one: ‘why do I need to get a life insurance policy?’ Obviously, it is to provide for others, but who do you have in mind? Is it your spouse, your children or both? Is it a business partner? Maybe it is primarily to pay off a debt, or even the inheritance tax on your estate. How much do you need the policy to pay and how do you want it to be paid out? In a lump sum or as a steady income over several years? There are plenty of policies to choose from which will do all of this for you, but you’ll make a better decision if you’re clear in your own mind what you want to achieve.
The UK insurance industry is the fifth largest in the world  and there are now 361 companies  from long-established names like the Prudential to more recent ones including Insurance 4 Retirement and Insurance 4 You. You’ll also have noticed many household brands such as Marks & Spencer offering policies and for many years it’s been possible to get life insurance from John Lewis. But whichever company you’re talking to, the essential questions will be the same.
When Should You Take Out Life Insurance?
Ask your insurer and they’ll answer: today. Actually, they’re right, because the older you are, the more expensive life insurance will be. Starting young means you’ll be paying for longer, but the premiums will be much cheaper, resulting in an overall saving.
In most cases, for every year you age, the premium will increase by between 8 and 10%. This isn’t linear as the rate of change can be as little as 5% annually when you are in your 40s and could rise by as much as 12% once you move into your 50s . Ask your insurer how the difference might work out with their policies.
How Do Your Short-Term and Long-Term Policies Compare?
The two most common policies are Term Life Insurance and Whole of Life Insurance. A Term policy lasts for a pre-determined period of, say 20 years. If you die during that time, it pays out but if you are still alive when your policy expires, your premium payments stop and your insurance ends. This kind of policy is ideal for specific shorter-term needs such as paying for your children to go to university or as a deposit on a first home. After 20 years, their circumstances may have changed so that this is no longer needed.
A Whole of Life policy, as the name suggests, has no expiry date and continues until your death. Apart from its open-ended nature, it can be cheaper in the long term because the premiums will be based on your health and fitness at a relatively young age and therefore lower. If your insurance company offers both then ask them to explain exactly what the differences are, both for and against.
Universal Life Insurance is a third option which, like whole life coverage, gives you permanent protection. The advantage of universal is that it allows you to adjust your monthly payments within a pre-agreed range. This is very useful if your income changes, or if you are self-employed and have a variable earning pattern. What you must ensure is that you monitor your use of this flexibility so that there is no danger of the policy lapsing. Ask the insurer to explain all the details of how it works.
There are other forms of insurance designed for very specific situations. For example, final expense insurance covers funeral costs. If you want to know the full range of options available to you then ask your insurer to run through each of them. The more you know, the better able you are to make the right decision.
What Does Your Insurer Need to Know?
There are certain basic details every insurance company needs before they will issue a policy, including lifestyle issues such as whether you smoke, how much alcohol you drink, family medical history and the general state of your health. However, some companies may insist on your having a thorough medical examination with your GP and providing them with the results. Simply for convenience, it is preferable not to have to do something so formal but ask the insurer if there is any extra benefit to you in complying with this requirement. For example, if the insurer has a GP’s opinion to rely on rather than just your own answers, will this make your premiums lower?
Can You Place Your Insurance Policy in Trust?
This may not be something you’ve thought of but by placing your policy in trust, you are removing it from your estate – i.e. the property, possessions and money you leave when you die. As inheritance tax becomes payable on anything you leave above £325,000 , a life insurance policy could go a long way towards reaching this threshold. If you remove it from your estate, then it doesn’t count towards this figure. Also, if it is not part of your estate, it can be paid out more quickly because there is no need to wait for the grant of probate which often has to be made after death and which can in some cases take several months. Many insurance companies can make this arrangement for you, so don’t forget to ask.
Can You Alter Your Policy at Any Time?
It’s impossible to predict how circumstances may change over a lifetime or even 20 years. If you marry or divorce, have children, change your career or even move to another country, your life insurance needs could be affected. There are many reasons why you might wish to change the people who benefit from the policy, or the proportions in which they do so, or any number of its terms. It’s advisable not to get locked into a policy which, years down the line, won’t do what you intended. Find out before you make any decisions whether terms can be changed and if so how easy it will be to do so.
Can You Add Extras?
Flexibility is a very good thing so if you are offered a standard policy you might want the freedom to add benefits such as critical or terminal illness cover. Don’t feel that you have to simply accept or reject the policy that is put in front of you – ask about the various extras that you could add before you take it out.
Will Your Life Insurance Satisfy Mortgage Lenders?
Many mortgage providers stipulate that you must have life insurance as a condition of the loan. This is to ensure they get their money back if you die before the loan is paid off. If you are taking out life insurance as part of a new mortgage, or replacing one, ask the insurer to look at the terms of your mortgage contract to confirm that the policy will meet them. If you do not have a mortgage but want to know that the policy you take out is likely to suit most lenders, then it is worth asking the insurer this as well. You are not asking for life insurance advice – which they are probably not authorised to give – simply enquiring about the policy they are offering.
Is the Insurance Company a Reputable One?
We appreciate that you’re not going to sit in an insurer’s office or have a phone conversation and ask them if you can trust them. Directness is usually a virtue, but sometimes it might not be the best approach. Simply ask them about their accreditation by any regulatory bodies and what kind of complaints procedure they operate. They should be perfectly happy to give you all the information you need, so if they seem to be less than forthcoming, it might be a warning that all is not perfect. Even if you do get satisfactory answers, it’s well worth doing your own research using Free Price Compare and consumer forums which are easy to find online.
Do You Need Your Own Policy if You Have One Through Your Employer?
Life insurance is a common benefit offered by employers and it is certainly a valuable extra. However, you shouldn’t assume that the policy will cover all your needs. It is likely to be a standard policy prepared for every employee regardless of their individual circumstances. It probably won’t pay out as much as you’d like. There is also the question of what happens if you leave your job, because unless the policy is portable, you may lose the premiums you’ve paid and the cover. If you stay with your employer it will end on your retirement. Also, if your employer has given it, they can just as easily take it away. Your own insurance company may not be able to advise you on your workplace policy but they should be able to give you some idea of how the two could work together.
These are some of the most important questions you should ask when you consider taking out a life insurance policy, but because every individual has such specific needs it’s impossible for any list to be exhaustive. Fortunately, there are many organisations who are qualified to give you advice on life insurance matters.
Money and Pensions Service is an arm’s length body sponsored by the Department for Work and Pensions. It was formed by combining the Money Advice Service, the Pensions Advisory Service and Pension Wise. It now provides the functions of these three services under the name MoneyHelper: .
Citizen’s Advice (formerly the Citizen’s Advice Bureau) was founded in 1939 and is now the UK’s largest independent advice provider. They give free advice on all aspects of personal finance: https://www.citizensadvice.org.uk.
So far we’ve been concerned only with what questions you should ask. These are important considerations, but there are two parties in an insurance contract, and it is only reasonable to expect a professional insurer to ask you questions as well. If they don’t seem interested in your plans, your current circumstances, your domestic situation, your obligations and goals, then you might want to ask yourself whether they are really going to offer you the best solution. Your requirements will be unlike anyone else’s and you need an insurer and a policy which reflects that.
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