Jane Baker writes about her personal experience of buying life insurance.
I first bought a house a few years ago. I've come down to London since then and am no longer a homeowner, but owning a house forced me to think more seriously about life assurance than I've ever done before. So here are a few lessons that I picked up.
The first thing I did was set up a term assurance policy to cover my shiny new mortgage. That meant my partner would be able to pay off the mortgage if I died.
I probably could have done with some extra life cover to allow for the cost of running the home itself and some income protection too, but buying a house is a pretty expensive project and most of all, I wanted to keep the costs down as much as possible.
I decided to go for a level policy which meant the amount of cover would remain the same until the end of term selected. In my case twenty-five years to coincide with the end of the mortgage.
What's more, because my mortgage debt was decreasing over time, I knew that I would gradually build up a surplus of protection over and above my outstanding borrowings. That might enable my partner to pay off any other outstanding debts if I died a few years down the track.
At the time, I thought the policy was pretty cheap but then I had the help of a friend who is a mortgage broker to give me a hand in getting the right policy at a reasonable price. You can too - with a little shopping around.
Indeed if you already have a policy, I'd encourage you to check whether you can find a cheaper plan elsewhere. If you haven't got round to arranging life protection yet, make it a priority. You may be surprised just how easy on the pocket it can be.
There are two reasons why you may be able to get a cheaper policy. Firstly, competition remains fierce in the life assurance market. Secondly, as life expectancy continues to improve, people pose less of a risk to term assurance companies.
Why not have a look at our Life Insurance Service, get a quote and see if you could save?
Just make sure you don't cancel the first policy until the second one is up and running. And if your policy originally came with extra benefits, such as critical illness cover or terminal illness benefit, be careful not to lose them when you make the move to a new insurer.
Getting The Right Life Cover - Checklist
- We've talked mostly about price and although this is important - nobody likes to pay over the odds - it isn't the only factor you'll need to consider:
- Decide how much life cover you need. Some of may not have enough if most of the cover is earmarked for repaying the mortgage. But what about other debts, household expenses, child care and so on? Use our life cover calculator to give you an idea of how much you'll really need.
- Do you want a policy with guaranteed premiums? This means the cost of your cover will always stay the same.
- Review your protection needs when your circumstances change. If you move to a larger home, for example, or have a baby you'll need more cover.
- Consider Critical Illness Cover (CIC) or Income Protection Insurance (IPI). Life cover only pays a claim on death. But what if you become ill or lose your salary? If it's affordable, these plans can provide vital protection.
- If you don't have any dependants you may not want to bother with life cover at all. CIC or IPI could be a greater priority for you. These policies are more complex than stand alone life cover so it may help to seek independent advice first.
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The comments above are the opinions of the author only and do not represent advice specific to your circumstances.
This article has been approved and issued by Direct Life & Pension Ltd who are authorised and regulated by the Financial Services Authority.
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