Top Tips For Buying Life Insurance

Seven tips to help you get the right protection when you buy a life insurance policy.

If there are people in your life who depend on you financially, then life insurance is arguably your top financial priority. Forget pensions, savings and investments for a moment. If your family relies on your income, how will they manage financially should the worst happen to you?

Taking out life cover which provides a lump sum on death during the policy term is pretty straightforward but making sure you've got a suitable plan and sufficient protection is a little trickier. Here are my top ten tips to consider before you apply:

1. Decide carefully how much cover you need It's easy not to take out enough cover for our families. Perhaps the majority is earmarked for repaying the mortgage, but what about other debts, household expenses and so on?

Use our life assurance calculator to give you an idea of how much cover you'll need. Once you know that, shop around for a competitive quote. Remember while it's important not to be under-insured, equally don't be over-insured either. If you don't have any financial dependants you won't need life cover.

2. Decide how long you need cover in place - Ensure the term of your life policy is long enough to meet your needs. Typically your policy could run until your children leave home, your outstanding debts are repaid or perhaps until your retirement.

3. Take care to complete your application form accurately Failure to give all the information you're asked for can have devastating consequences. Life assurance companies call this non-disclosure and they can use it as a reason to reject your claim.

4. Set your policy up in trust A trust is a way of putting an asset aside to benefit others. This can include the value of your life policy. The trust ensures the pay out from your policy goes to the people you want when you die. Crucially if your policy isn't written in trust it automatically becomes part of your estate, which could increase your inheritance tax liability. Don't forget to complete the simple trust form which should be included in your application pack.

5. Don't pay more than you can afford This sounds almost too simple to mention but the cost of life cover can be high if a life assurance company decides insuring you represents a greater than average risk.

The most widely used policy is Level Term Assurance (LTA) where the sum you're insured for remains the same for the duration of the term, but there are cheaper alternatives. If you need life cover for a reducing liability such as repayment mortgage you could use Decreasing Term Assurance (DTA). This is less expensive because cover reduces over the term in line with your outstanding mortgage debt.

6. Review your level of protection when your circumstances change Moving to a larger home or the arrival of a baby are typical events where additional cover is sensible. Many of us tend to forget that as our circumstances adapt, our financial liabilities and therefore our need for life protection often increases.

7. If you already have a life policy shop around if you've had your plan for some time, you may find that you can switch to cheaper policy now. It's worth shopping around to find out.

But be careful before you cancel anything. Make sure you don't lose out on any valuable benefits that aren't available on the new policy. If your health has deteriorated or there has been any other change in your circumstances since you took out your original policy, you may find a new plan is considerably more expensive. In that case, stay put.

So there you have it. My top tips to help you find the right life insurance policy for you and your family.

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