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Life Insurance

Life Insurance is the means by which you can fulfill your obligations having passed away. When you die your named beneficiary, your spouse for example, will receive payment from the insurers – usually in the form of a lump sum, the amount of which being determined by the policy you have taken out.

So why might you need Life Insurance? It enables you to make provisions for your dependents, helping them to live in the manner they are accustomed to even without your incomings. It may be that you need to cover mortgage repayments as your family wouldn't be able to do so without your earnings otherwise. Or you may wish to make estate provisions to meet the cost of inheritance tax for those you leave behind, for example.

Many people take out Life Insurance to the value of around 2 to 6 times their annual income, but depending on your circumstances you may wish to specifically cover the cost of something, say a mortgage or other loan or perhaps the amount you forecast your children's university fees to amount to. Remember when making any such decisions to factor inflation into the equation!

The type of policy you choose as well as the amount you wish to be insured for will contribute to determining the premium you pay, but similar products will vary in price between different companies.

The premium is also dependent upon your age, sex (women tend to pay less), occupation, lifestyle habits (smokers pay much more) and of course your general health up to the point the policy is take out.

There are many different types of Life Insurance, each tailored to fulfill particular requirements. So you should consider exactly what you want your policy to do and then look for the product that meets your needs.

There are two main categories into which Life Insurance products fall, 'Term' policies and 'Permanent' (otherwise known as 'Whole Life' or 'Cash Value') policies.

Term policies cover you for a specified period of time, 10 years for example, and only pay out if you die within this interval. This makes them a cheaper product than Permanent policies which cover you literally until you die.

Permanent products also include a savings element, and as such have a surrender or cash value if you require it (although in some circumstances this may act to cancel the policy).

It is now also possible to find products (Combination Plans) that encompass the better features of Term and Permanent policies. (for more information view our 'Term Policies' and 'Permanent Policies' pages)

In general, the older you are, the more stable your financial position and the greater your investments, the more likely it is that a Permanent policy will be better suited to you.

Life Insurance can be very confusing and complicated and your choice is incredibly important, so it is prudent to seek council from an independent financial adviser before making any final decisions – even if you do have a prior understanding of the subject.

Ensure that your adviser is truly 'independent' and not tied to a particular company or multi-tied to a collection of companies offering life insurance products, so that you can benefit from what the full market has to offer. (view our 'Regulations And Regulatory Bodies' page for more details)

If you already have a Life Insurance policy, it is still worth reviewing what is on offer every so often. With increasing competition in the market, insurers try to undercut their adversaries to gain new custom. With Permanent policies you would be able to recoup the surrender value of your existing policy when taking out a more appealing one – but it is even possible for those with Term policies to get a better deal over all by cancelling their current policy in favour of a newer product.

It is also worth considering the issue of Critical Illness insurance. If you are unable to work as a result of a critical illness and require special care also, you and your family are likely to encounter financial difficulties before you die. It is possible to incorporate Critical Illness cover into your Life Insurance policy to compensate for this. (for more information view our 'Critical Illness Insurance' section)

Coming soon: Permanent Policies, Regulations And Regulatory Bodies, Term Policies,