What questions to ask when buying life insurance

Buying a life insurance policy can seem daunting at first. Nobody wants to think about a future in which we're no longer around; nevertheless, your family deserves peace of mind. 

Life insurance is designed to help provide your loved ones with financial support for the future ahead. But before you decide to purchase a life insurance policy, consider these key questions...

Do I need life insurance?

Not everyone feels the need to buy life insurance, yet it could provide a big helping hand for your family and/or loved ones. If you have dependents, you really can't afford to overlook this important financial product.

Consider your current situation: do you have children, a partner/spouse, or anyone who relies on your income? If the answer is yes, life insurance can help ensure they are financially protected in the event of your untimely passing.

It can be used in several ways, such as:

• Providing financial support for your family/loved ones
   

• To replace lost income
   

• To cover a mortgage or other debts
   

• Funding your children's education
   

• Covering funeral expenses and other end-of-life expenses
   

• To act as a legacy

You may already have life insurance through your employer, in which case you should evaluate whether that policy is sufficient. If not, you could benefit from taking out a policy of your own, especially if you change jobs.

Which type of cover should I buy?

Life insurance is designed to pay out a cash lump sum to your loved ones in the event of your death. The amount they receive depends on the type of policy you choose, as does the amount of cover you buy.

There are two main types of life insurance cover - whole life insurance and term life insurance. These policies share similarities as well as differences, mainly in terms of cost and length. It's important to understand how these cover types work, so you can figure out which works best for you.

Whole life insurance

• Has no expiry date - the policy lasts for the rest of your life (so long as you keep paying your premiums)
   

• Pays out a lump sum to your loved ones, no matter when you die
   

• Typically has higher premiums than term life insurance

There are two types of whole life insurance:

• Standard cover: Your premiums and payout value are fixed throughout your cover as agreed with your insurance provider. Buying this cover when you are younger can lock in a cheaper premium rate, saving you money in the long run.
   

• Maximum cover: Your cover is linked to an investment fund, which your insurer pays into each month using the money from your premiums. If the investment is successful, you may receive a bonus, which is paid into your policy. However, if it fails, your premiums may be raised to cover the loss.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. 

If you are facing financial difficulty, please contact your insurer before cancelling your policy or letting it lapse. They may have options available that means you don't have to lose the plan.

Term life insurance

• Protects you for a set period of time (i.e. 20 years)

• The policy only pays out if you die within this time

• Premiums for term life insurance are usually much cheaper than whole life

Term life insurance has 3 levels of cover:

• Level term: The cost of your premiums is fixed throughout the policy term. The death benefit of the policy also stays the same regardless of when you die during the term.
   

• Increasing term: The pay out value of your policy increases over time to try and help to protect the eventual amount from inflation. The downside to this is that your premiums will also increase.
   

• Decreasing term: Typically taken out to cover large payments, such as repayment type mortgages. The policy pay-out decreases over the term of the policy, usually by a set percentage agreed at the policy outset. 

To sum up, if you're looking for a long-term solution for life cover, then a whole life policy may well be your best option. However, if you want cheaper premiums, then term life insurance may be a better choice for cover.

Joint life insurance

Alternatively, you can opt for joint life insurance. This provides cover for two people under a single policy. It's an ideal choice for couples wanting to protect their partner if they die. It could also work out cheaper than buying two separate single-life policies.

Joint life insurance policies can be term or whole, and you can purchase a plan to payout on the first or second death. Premiums for these plans are fixed, unless you choose to add indexation.

The type of cover you choose could ultimately affect your premiums. Don’t forget about add-ons, such as income protection - they can also lead to higher rates.

Should I add critical illness to my policy?

While death is one event to be prepared for, illness can also happen suddenly and can impact your financial situation just as much.

Adding critical illness cover to your life insurance policy can provide additional peace of mind and financial support if you are diagnosed with a severe illness, such as cancer, a heart attack, or a stroke.

Critical illness cover pays out a lump sum if you are diagnosed with one of the specified conditions covered by your policy, during the policy term.

This payout can help cover any bills or expenses that may arise due to the illness, allowing you to focus on recovery without any added stress. However, the policy will only pay out once.

How much cover will I need?

Everyone has different needs for cover, so figuring out an ideal amount can go a long way in keeping your loved ones protected. 

For example, if you have a large family, you could require more cover compared to someone with no children. Likewise, if you have debts, such as a mortgage or loans, you may want to factor those into your cover amount.

Consider factors such as:

• Current and future debts
   

• Ongoing living expenses for your family or loved ones
   

• Childcare costs
   

• Potential income replacement needed for your dependents
   

• Any other financial goals or obligations you have

Remember, the more cover you take out, the higher your monthly premiums could be. Instead, focus on a policy that covers any current or potential financial commitments your loved ones may face.

Additionally, you may want to review your policy regularly, as your needs may change over time. If you find that you no longer need the same level of cover, you can always adjust your policy accordingly.

At what age should I get life insurance cover?

The older we get, the more likely we are to be diagnosed with a medical condition that could increase the cost of cover, or even cause us to be declined altogether.

The best time to get life insurance is when you are young and healthy. This is because premiums for life insurance cover are often based on age and health. The younger and healthier you are, the lower your premiums may be.

How much will a life insurance policy cost me?

There's no flat rate for how much a life insurance policy will cost. Instead, premiums can vary based on several factors. These include:

• Age
   

• Gender
   

• Health & medical history
   

• Occupation
   

• Cover amount
   

• Policy type

Two of the biggest factors for buying life insurance are age and health. The older you become, the higher you can expect the pay when applying for a policy. The same also goes for if you have any pre-existing medical  conditions. With this in mind, it's often cheaper to buy cover when you are younger.

Consider the cost of your monthly premiums over the policy term. The last thing you want is to be unable to pay premiums later down the line. While the cost of a policy may seem manageable, consider how your situation might change.

Can I still get life insurance if I smoke?

Smoking can also have a big impact on how much you pay each month for cover. Not only is it bad for your health, but it can lower your life expectancy, therefore increasing your premiums for life insurance. Depending on the provider, your premiums may be lowered (provided you've stayed smoke-free for at least 12 months, typically subject to a cotinine test).

For more information, please see our guide on life insurance for smokers.

What happens if I cancel my life insurance policy?

If you decide you no longer need life insurance or can no longer afford premiums, then it may be possible to cancel your policy. In most cases, this option is only available for whole of life policies.

Most insurers have a 30-day cooling-off period once your policy begins. If you cancel the policy within this time period you'll receive a refund for the premium paid. Beyond this time, you won't receive a refund if you cancel.

If you cancel your policy, you will lose any cover and benefits associated. Additionally, you may face higher premiums due to age or changes to your health if you decide to purchase a new policy in the future.

If you are facing financial difficulties and can no longer afford your premiums, please contact your insurer as soon as possible to stop the plan from lapsing automatically. They may have options available that allow you to keep the cover in place.

Should I write my policy in trust?

While the proceeds from your life insurance won't be taxed in the same way as other assets, writing your policy in trust can help ensure that the payout goes directly to your beneficiaries without going through probate.

If your estate exceeds the Inheritance Tax threshold (£325,000), it will be taxed.

Once your policy is written in trust, the benefits can be paid out directly to your chosen beneficiaries. In doing so, it bypasses the often lengthy and complex probate process. This can provide faster financial support to your loved ones during a difficult time, plus it won't be liable for inheritance tax.

Apply for a quote in minutes

At Cavendish Online, we are committed to providing the best value for life insurance cover. You can apply for a quote in just minutes by using our online form. Or if you seek further guidance, you can speak to one of our trained life insurance advisors. Give your loved ones the peace of mind they deserve by applying for a policy today.