Comparing life insurance: What to know
By now you’ve probably seen countless adverts for life insurance, whether that be on TV, mobile or the internet. Though life insurance provides a priceless form of financial safety net for your family, it’s not as simple as buying something in a supermarket. This article aims to help compare life insurance so that you can find the right policy for you and your loved ones.
But first, you need to understand what life insurance is and the main types available.
What is life insurance?
Though it’s difficult to think about, sadly, we’re all going to die one day. But how can we ensure our loved ones are financially secure when we’re gone? That’s where life insurance can help.
Life insurance works just like any type of insurance policy. When you die, your policy pay-out a lump sum payment to your family. How your policy works depends on the type of life insurance you take out – but we’ll get to that in just a moment. When you take out a policy you pay your insurer monthly or annual premiums to stay covered.
The pay-out from a Life insurance policy can be used to help your family with:
- Everyday living costs
- Housing costs such as rent
- Outstanding debts and loans like a mortgage
- Childcare costs
- Education costs such as school or university fees
- Funeral expenses
- Providing an inheritance.
The main types of life insurance
There are two main types of life insurance – whole-of-life & term life insurance. Though they sound similar, they both work in different ways.
Whole-of-life insurance (also known as ‘life assurance’) covers you for the rest of your life from when you take out a policy. Whole-of-life insurance has no expiry date meaning your family is guaranteed payment, no matter when you die. All you need to do is keep up with your premium payments to stay covered.
Generally, whole-of-life insurance is the most expensive form of life insurance, but you have the added benefit of being guaranteed a pay-out.
Term life insurance works differently, having an expiry date often known as the policy term. The policy term often lasts for a set amount of years (i.e 20 years), to receive a pay-out you need to die within this period. If you survive the policy term (which is a good thing!) you will no longer be covered.
Term life insurance works in 3 different types of cover:
- Level term – Your premiums and pay-out remain the same throughout the policy term. The downside is that the pay-out is not protected by inflation so may be worth less than when you originally took out the policy
- Increasing term – Your pay-out increases over time to protect it from the effects of inflation, however, so do our premium costs.
- Decreasing term – This type of policy is usually taken out to cover a large payment such as a mortgage or loan. As you pay back the amount owed, the value of your policy decreases. The idea is that when your mortgage balance reaches zero so will the policy pay-out.
You can also purchase additional protection to add to policies such as critical illness, income protection & terminal illness cover.
Things to consider when comparing life insurance
When searching for a life insurance policy there are some things worth considering. There are countless insurance providers out there and thanks to the internet, the numbers keep on growing. With that in mind, it’s important to take your time and not to rush into anything as you may have this policy for the rest of your life.
Before taking out a policy, consider:
- Your budget
- The type of policy you want
- The amount of cover you need
- Whether your family needs cover
- How it might impact any outstanding debts you may have
How much is life insurance?
The general rule of life insurance is to get cover when you are young to save money on premiums. With life insurance, the older you become, the greater the chance of death, therefore insurers charge you more for premiums.
Several factors can determine how much a policy might cost you such as:
- Your age
- Smoking status
Not only is smoking bad for your health but it also can impact your policy value and premium costs. However, some insurers will reduce the cost of your premiums if you give up smoking, as an incentive for you to quit – which is a double benefit!
If you have a spouse or significant other, it might be worth taking out a joint policy. Many couples find it beneficial to opt into a joint policy as it’s often cheaper and easier to manage than two single policies.
Where to get advice
If you’re unsure about which policy is best for you, then it is worth speaking to an online life insurance broker. Searching for insurance doesn’t have to be a chore! An insurance broker can find a policy that both matches your circumstance and price range so you don’t need to spend hours searching.
If it’s the financial aspects that have you concerned then you should speak to a financial advisor. They can tell you which policy suits your financial circumstances.