Comparing a life insurance quotation: Understanding policies and costs

So you’ve decided it’s time you applied for life insurance? Great! After all, we all want to make sure our loved ones are looked after when the time comes. Prior to taking out a policy, you'll need to get a life insurance quotation from your chosen insurance provider.

We know that searching for the right life insurance plan can sometimes feel like a drawn-out process. With so many different insurers out there, it can often be overwhelming to choose the best one for you. That’s where we can help...

This guide aims to help you understand what a life insurance quotation is, as well as the different policies and costs.

What is a life insurance quotation?

In short, a life insurance quotation (or ‘quote’) is an estimation of what you might expect to pay when taking out a policy. Each quote you come across is there as a way to inform you what you can expect to pay, with some companies offering cheaper quotes compared to others.

Types of life insurance cover

There are many types of life insurance, some will suit your needs more than others. The most important part is finding the right policy for you and any loved ones you wish to be covered. The main types of life insurance are as follows:

Term life insurance  covers you for a period of time (i.e 20-30 years) - hence the 'term' part. You'll usually take out this kind of policy to cover financial obligations such as a loan or mortgage. There are 3 different types of term life insurance cover, which are:​

• Level term - Your beneficiaries will receive a lump sum as long as you die within the agreed period. One downside to this, however, is that inflation isn't taken into account - so if you took out a policy 30 years ago, your dependents will technically receive less money in terms of the rise in the cost of living.

Whole of life insurance is sometimes also known as 'life assurance'. Unlike term life insurance, this type of insurance covers you for your whole life, instead of over a period of time. This policy always pays out in the event of your death - just so long as you keep up with payments. Like term life insurance, this type of policy comes in three forms:

• With-profits whole of life insurance - Your premiums are invested by your insurance provider or broker. The purpose of this is to make a return in profit to cover the agreed pay-out. One positive about this policy is that if the investment does well, bonuses are added to your policies overall value. However, such as with any investment, there is always the risk of your investment failing - which in this case, means your payments may increase.

• Non-profit whole of life - (Can be known as standard cover or balanced cover) Your monthly premium remains the same throughout the duration of the policy. Upon death, the pay-out will be a fixed-cash payment that was agreed with your provider when you took out the policy.
   
• Unit-linked whole of life insurance - You are in control of which investments your money goes into. The monthly premiums are determined by how much you want the payout to be. If your investments underperform, you may end up paying more.

Joint life insurance policies provide cover for two people and are ideal for those who have a partner, with or without children. If written on a ‘Joint Life First Death’ basis, such a policy ensures a single payout should one of them die and a lump sum will be paid to the surviving member of the policy. As it only covers one death, the survivor will need to take out a new policy should they still require cover.

Terminal illness cover is included with most term life insurance products for no additional cost. This typically provides an early pay-out should you be diagnosed with a serious illness and have less than 12 months to live. Providers may have different criteria or exclusion periods. Though this is never an easy time, this cover is there to help prepare financially or make precious memories with loved ones, for example a dream holiday or experience. 

Critical illness coverwill pay out if you suffer an illness which meets your chosen providers definition. It's always important to be aware of what critical illnesses you are covered for as insurance providers' coverage can differ depending on the insurer you select.

Over 50s life cover is available to anyone between the ages of 50-80 who have underlying health conditions and may be unable to secure fully medically underwritten cover, or those who simply want to be covered as soon as possible without going through lengthy applications. 

Income protection insurance will provide you with a regular income (typically up to 70% of your gross annual income) in the event of you being unable to work due to illness or injury, after a specific period of time (the ‘deferred period’). This policy acts as a support buffer to help stabilise your finances either until you can return to work, the pay-out term ends (some income protection policies have limited pay out terms) or you pass away - whichever is earliest. 

How to get a life insurance quotation

Getting a quote is as straightforward as it sounds and can be completed in seconds! 

Once you feel you have found the right provider, simply answer their questions regarding your health and lifestyle. Usually it’s a quick and easy process. 

Here at Cavendish Online, we offer 3 separate, but simple routes to take when helping you find an insurance quote:

Types of life insurance cover

There are many types of life insurance, some will suit your needs more than others. The most important part is finding the right policy for you and any loved ones you wish to be covered. The main types of life insurance are as follows:

Term life insurance  covers you for a period of time (i.e 20-30 years) - hence the 'term' part. You'll usually take out this kind of policy to cover financial obligations such as a loan or mortgage. There are 3 different types of term life insurance cover, which are:​

• Level term - Your beneficiaries will receive a lump sum as long as you die within the agreed period. One downside to this, however, is that inflation isn't taken into account - so if you took out a policy 30 years ago, your dependents will technically receive less money in terms of the rise in the cost of living.
   
• Increasing term - The payout from your insurer will increase over time. This policy works out better if you want to leave your family with financial help, later down the line. For example: If you have young children you may want to leave them money to help pay for a house or living expenses. 
  
  Unlike level term insurance, this policy is devised to protect from inflation. You should be aware that if you select an increasing term policy (sometimes also referred to as ‘indexed’ or ‘index linked’), your premium will also increase to account for the increase in your sum assured. The increase is usually in line with the Retail Price Index. If you don’t want to do this when the provider asks, you can choose to decline this option.
   
• Decreasing term - As the name would suggest, your insurance pay-out decreases over time. This type of policy is aimed at people whose financial responsibilities reduce as time passes. Often chosen to cover debts such as repayment mortgages which can reduce over time.

Whole of life insurance is sometimes also known as 'life assurance'. Unlike term life insurance, this type of insurance covers you for your whole life, instead of over a period of time. This policy always pays out in the event of your death - just so long as you keep up with payments. Like term life insurance, this type of policy comes in three forms:

• With-profits whole of life insurance - Your premiums are invested by your insurance provider or broker. The purpose of this is to make a return in profit to cover the agreed pay-out. One positive about this policy is that if the investment does well, bonuses are added to your policies overall value. However, such as with any investment, there is always the risk of your investment failing - which in this case, means your payments may increase.
   
• Non-profit whole of life - (Can be known as standard cover or balanced cover) Your monthly premium remains the same throughout the duration of the policy. Upon death, the pay-out will be a fixed-cash payment that was agreed with your provider when you took out the policy.
   
• Unit-linked whole of life insurance - You are in control of which investments your money goes into. The monthly premiums are determined by how much you want the payout to be. If your investments underperform, you may end up paying more.

Joint life insurance policies provide cover for two people and are ideal for those who have a partner, with or without children. If written on a ‘Joint Life First Death’ basis, such a policy ensures a single payout should one of them die and a lump sum will be paid to the surviving member of the policy. As it only covers one death, the survivor will need to take out a new policy should they still require cover.

Terminal illness cover is included with most term life insurance products for no additional cost. This typically provides an early pay-out should you be diagnosed with a serious illness and have less than 12 months to live. Providers may have different criteria or exclusion periods. Though this is never an easy time, this cover is there to help prepare financially or make precious memories with loved ones, for example a dream holiday or experience. 

Critical illness cover will pay out if you suffer an illness which meets your chosen providers definition. It's always important to be aware of what critical illnesses you are covered for as insurance providers' coverage can differ depending on the insurer you select.

Over 50s life cover is available to anyone between the ages of 50-80 who have underlying health conditions and may be unable to secure fully medically underwritten cover, or those who simply want to be covered as soon as possible without going through lengthy applications. 

Income protection insurance will provide you with a regular income (typically up to 70% of your gross annual income) in the event of you being unable to work due to illness or injury, after a specific period of time (the ‘deferred period’). This policy acts as a support buffer to help stabilise your finances either until you can return to work, the pay-out term ends (some income protection policies have limited pay out terms) or you pass away - whichever is earliest. 

Determining the cost of your life insurance policy

There are several factors that help insurers generate a quote for the cost of your desired life insurance policy. These can range, depending on the insurer. When you apply for a quote, the insurance company will want to know the following things about you:

• Your age (premiums rise the older you are)

• Your health (those with complex medical disclosures may be unable to secure medically underwritten cover)

• Your occupation

• Whether you participate in any high risk hobbies or activities

• If you’re a smoker

• The length of coverage you want (the policy term)

• The payout amount (the sum assured)

These elements affect the cost of your premiums as well as the overall payout. Should you inform your provider of a pre-existing medical condition, they then may ask you further health questions about:

• How long have you’ve had a condition

• If you’re taking any medication

• Your family's health history

• If you’ve recently been in hospital

With this in mind, it's essential to answer all questions as honestly and accurately as possible. Ultimately, withholding any information could result in a void policy.

I have a death in service benefit through work - is it still worth buying life insurance?

Whilst having a death in service benefit might make a life insurance policy a less urgent purchase, it’s still certainly worth looking into. Death in service benefit will usually be paid out as a tax-free lump sum and is counted as a multiple of your salary.

If you die at any point whilst covered by a death in service benefit by your employer,  your loved ones will receive a payout to use as they see fit. This cover, however, can be limited and may not fully cover your liabilities so it's always a good idea to take out a life insurance policy alongside it.

In reality, it’s unlikely you’ll remain at one company throughout your working life. While your current company might have a great death in service benefit, you could move to a new job, where they have a smaller death in service benefit- or even none at all.

As such, it's worth considering taking out a life insurance policy for added protection. Should you receive a pay-out for a death in service benefit too, it'll be an extra helping hand for your family if you were to pass away. Life insurance can also be used to help families with funeral expenses and estate planning.

Comparing a life insurance quotation

When comparing a life insurance quotation there are 3 things you should consider to help you find the policy that's right for you:

• Which type of life insurance are you looking to buy? 

• What is the amount of life insurance cover you need? 

• Exactly how long do you wish for your policy to last?

Give us a call

Need assistance? You can call us on 01392 43 61 93 to speak with one of our helpful insurance specialists over the phone, who will be ready to help you find the best cover for you and your loved ones.