If you read our blog regularly, then you’ll know we’ve been covering the ins and outs of Life Insurance in the past few weeks. We’ve looked at what it is and why you need it, the different types of cover available, whether or not critical illness is critical, and finally, how you could make your insurance more tax efficient. Phew! We’ve got through a lot. But we’re not quite done, as now that you know so much about it, we wanted to remind you of some important things before you decide to purchase Life Insurance.
Now, we are here to help you at every stage of this decision making process. It is perfectly possible for you to buy life insurance on your own via the magic of the internet, but with so many factors at play, this might be one area where it pays to have an expert helping you navigate the waters. Whether you decide to go it alone or get some advice, here’s six things to consider:
1) Two life insurance policies might turn out to be better than one
We mentioned taking Life Insurance out as a joint policy with your spouse in our first blog on the subject, but a joint one may not always be the best option. For example, two individual policies will often cost no more than a joint policy, and two policies means that if both partners die within the coverage period, the beneficiaries will get two payouts rather than one. There’s also a little more flexibility, as while joint policies tend to payout automatically to the surviving spouse, a single policy can be distributed under the terms of your will. If you’re a married couple, it’s worth considering both options.
2) Beware of ‘low-start’ policies
If your monthly payments look too good to be true, well, perhaps they are. In this case, while low-start policies may seem cheaper upfront, in actual fact the monthly premiums increase throughout the term of the cover. This may make a level-term policy, where the monthly premiums are fixed for the duration of the cover, a cheaper option when you weigh up the total cost.
So, it’s worth considering the affordability of the monthly payments over the long term, not just at the start. Can you afford the initial premium and any increases? What if you lose your job or earn a lot less? Or what if your needs change and you need to adjust your policy?
3) And while you’re at it, think carefully about reviewable policies
Remember the too good to be true intro? Rinse and repeat. You see, rather than monthly premiums staying the same, a reviewable policy only guarantees the premium for a set number of years. After that point, it’s repriced. As you age, or if your health has taken a turn for the worse, that affordable monthly payment may not be affordable anymore.
4) Don’t be afraid to ask questions until you are 100% clear
If you were buying a house, you’d want to know everything about it. The history, what it’s made of, how busy the road is at peak times, what the neighbours are like, whether there’s double glazing…the list is endless. By the time you come to sign on the dotted line, you will hopefully know everything you need to know to be able to make the decision. It has to be the same with Life Insurance – you should understand absolutely every aspect of it before you put pen to paper. The clauses, the cancellation policy, any guarantees, the exclusions – you need to know it all, so ask until you’re clear.
5) Check to see if you have any other benefits
If you’ve got Death in Service cover, for example, through your employer, you may decide that you don’t need to have quite so much cover through your Life Insurance policy. You might find that your employer offers two times or four times your annual salary, so it may be worth considering how much you need overall and taking that into account.
Beware, however, as if you make decisions based on that cover and then you leave the company or are made redundant, the benefit will stop, which may leave you underinsured.
6) If you get rejected, it’s not the end of the world
When we explained Life Insurance in our first blog, we went into detail about how many variables there are, and how each insurer will rate you slightly differently depending on their own interpretation of those variables (and combinations of variables!). So, if you’re rejected for cover from one provider, look elsewhere, as a different provider may come to a different conclusion. It pays to shop around.
And that’s it. We hope you’ve enjoyed the Life Insurance mini-series. If there’s a particular area of Personal Finance you’d like us to explain a little more, leave a comment and we’ll see what we can do!
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
GreenSky Wealth Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 629624. Registered Office as above. Registered in England and Wales, Company No. 07103441.