What You Need to Know About Life Insurance
If you have a family, you may well be considering life insurance to provide for your family after your death. But this is a complicated area, so before you start getting life insurance quotes what do you need to know about how it all works?
Life Cover Basics
Life insurance pays out a lump sum or a regular income to your partner or family after you die. There are two basic types of cover; the first is “whole life” insurance, which will pay out on your death whenever that occurs. The second is “term” insurance which will pay out of you die within the fixed period of the policy. The latter is most commonly used to ensure that your family would be able to pay off a debt – such as a mortgage – in the event of your death.
With term insurance, you can opt for level cover, which pays out the same amount whenever you die, or decreasing cover, which pays less as your mortgage reduces. This means your premiums will go own over the course of the policy too.
Life insurance is not to be confused with endowment policies, which, although they may pay out a lump sum on your death, are an investment product designed to give you a return over a fixed period of time.
Cover and Cost
When taking out a policy you need to decide how much cover you need. Most experts reckon that a sum of around ten times your annual salary is about right.
How much the cover will cost depends on a number of factors. Partly it will be down to the type and duration of the policy as discussed above. Your age and health are a factor too, the older you are when you take out cover the more expensive it will usually be. Similarly, if you smoke, drink or are overweight, you will pay more for your life insurance.
It is a good idea to review your insurance needs occasionally. The best time to do this is when you experience a major event such as getting married, having a child or moving to a larger property.
It is important to be aware that insurance companies may sometimes refuse cover if a person is deemed too big a risk. Reasons for these exclusions may include having a high-risk job, such as members of the armed forces or some construction workers; indulging in dangerous hobbies, like parachuting or motor sport; a history of serious health issues, such as heart issues or diabetes; or lifestyle issues such as heavy drinking or smoking.
There may also be circumstances when, even if you have cover, an insurer will refuse to pay out. These would include death due to suicide or to drug and alcohol abuse. However, the percentage of claims turned down by insurers is very low.
There is a lot to consider when taking out life insurance, so when you are looking at quotes make sure you read the small print and shop around to get the best deal for your needs.