Shopping for life insurance is often complicated by the vast choice of competing products on the market.
Everyone seems to sell life insurance from supermarkets to banks, but often the same insurance company is selling a slightly different product under someone else’s brand.
The best way to shop for insurance is to have a checklist of why you are buying the cover and to ignore ‘headline’ offers that sound good but often mean they are expensive or skimp on essential features.
Life insurance is designed to pay a lump sum to your family or loved ones when you die. Some policies also pay out if you suffer a life-threatening illness or injury.
Whatever you need life insurance to cover, here are six key facts to bear in mind before taking out a policy:
When will the policy pay out?
Insurance companies often have a list of ‘exclusions’ that are reasons why they won’t pay out. Popular life insurance exclusions are death due to alcohol or drug abuse. Others do not cover dangerous activities or perhaps illnesses or conditions the policyholder suffered before taking out the policy.
Questions to ask include what happens if you miss a payment and does the policy allow for reviewing the amount of cover, and if so, what costs are involved?
Keeping payments on track
It’s likely that during the course of a policy that lasts 10 years or more, your financial circumstances will change – for instance you may lose your job. Some policies take this in to account by including a small, extra charge for ‘waiver of contribution’, which is designed to keep up the payments when you can’t pay.
Cancelling the policy
Find out what happens to the contributions you have paid if you stop the policy and whether you are still have life cover and at what level.
Writing a policy under trust
Many insurance companies have standard forms that help policyholders put their life insurance in to trust. Policies in trust are outside inheritance tax rules and are paid directly to whoever you name as the beneficiary if you die. Trusts are not a solution for every policyholder, so take legal advice before you sign the forms.
Compare life insurance policies
Many life insurance policies have similar prices, terms and conditions, but sometimes a company may offer a special product or enhanced features. Check this out with a broker or comparison web site before making a final decision.
You can buy life insurance direct from a provider or a middleman, like an insurance broker or financial adviser.
Just make sure they can offer products from the whole of the market and are not tied in to a specific company that limits your options.