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At some point in everyone's life there will be a time when you will consider purchasing a life insurance policy to ensure that your loved ones are catered for in the event of your death. It can be an extremely confusing transaction because of the amount of jargon that is involved. Cheapest isn't always best though. In reality it could often be the case that a life insurance policy is cheap because there is small print that the provider hopes you don't notice. Instead please use these rules to identify value. Here I will show you the key points you should consider when setting up a policy:
Set the sum assured at the same level as your mortgage. If your mortgage is for £100000 then get £100000 worth of cover; if your mortgage is for £80000, then get £80000 worth of cover. There is no need to get any more than this.
Set the length of term until the age of 65 no matter how quickly you plan to plan to pay off your mortgage. The reason you should do this is that you may still require life insurance in later life. Having to go for a new life insurance policy after the age of 40 can be extremely expensive. The main factor in the cost of life insurance is age so a £100,000 policy at 25 is going to be a lot cheaper than the same policy at age 45.
Don't take the waiver. An insurance waiver is a clause that allows you to miss payments without the policy defaulting, should you ever be out of work. We already have emergency funds factored into our plan that mean this extra is unnecessary.
Always select level term. With level term the sum assured remains constant throughout the term (although obviously affected by inflation). The opposite of level term is decreasing term. Decreasing term life insurance goes down every year leading to the ridiculous situation where you are paying the same amount year on year for less and less return. Level term assurance will only be pennies more than decreasing term so don't scrimp on this one!
Couples should have separate policies. Insurance companies will never tell you this but it is possible to get double the amount of life insurance for only a small increase in price. Having a joint policy would mean that there would only be one payout should any of the two of you die but the slightly more expensive separate policy option would lead to twice the payout. No wonder insurance companies don't tell you this - it would double their liabilities.
Write your policy in trust. Writing the policy in trust means that the beneficiaries of your life insurance policy will not have to pay inheritance tax on the gain. Writing a policy in trust is a relatively simple process. A real expert will be able to set up a policy in trust free of charge.
If we take the example of an average young couple (and assume they are non-smokers) this is how much their policy will cost:
Mortgage Chantelle Preston
£80,000 £5.58 £6.92
£90,000 £6.07 £7.51
£100,000 £6.32 £8.10
£110,000 £6.80 £8.71
£120,000 £7.29 £9.32
I'm sure you'll agree with me that this is very cheap indeed - but more importantly, it serves the needs of the people involved.
In summary, use these rules to make sure that you get the best value for money life insurance available.
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