A simples guide

How do I decide the term of a life insurance policy?

One of the main considerations in determining the length of time for which your life insurance should run is the reason why you want to take out the cover. You may for example want your insurance to last:

 

• For the rest of your life, should you be looking to cover funeral expenses or leave a legacy to your loved ones

• Until your children are likely to cease to be dependent on you, say at age 18 or 21

• Until your loan or mortgage ceases

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If you want cover for the rest of your life

If your need for life insurance will not diminish in old age, then whole-of-life assurance might appear to be the best option. However, before purchasing this form of insurance, you should pay particular attention to the total amount you will pay in premiums, considering that whole-of-life policies often require you to continue to make payments for the rest of your life, or at least until an advanced age, say 85. You may find that the total premiums payable are well in excess of the sum to be insured, in which case you might like to consider term insurance initially (see below) and maybe switch to whole-of-life assurance later in life. Some term policies allow you to switch to whole-of-life during the policy term.

Don’t forget to factor in inflation when deciding on your sum insured, as the cost of a funeral or general living costs may rise significantly during your lifetime. Consider selecting a sum insured that covers the estimated costs in the future, not just now.

Some people take out over 50s life insurance for funeral expenses. Bear in mind that these plans often have a maximum age for acceptance, say 75 to 85. There is no assessment of your health before cover commences, but you may need to survive for two years after commencement of the policy in order for your beneficiaries receive a payout.

If you want cover until your children are independent

Firstly you should decide how long it’s likely your children will remain dependant – this might be age 18 if they go straight to work from school, or between 21 and 23 should they go to university. You should then take out a plan which runs until this date.

You can also take out a policy to cover the costs of your household losing your income . If you choose to take out level term insurance then a fixed sum is paid on your death which will hopefully cover any outstanding bills you may have.

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If you want cover until your loan or mortgage ceases

If you’re seeking life cover for a loan or mortgage, then the sum insured is likely to be the amount outstanding on the debt, and the term of the plan is likely to be the length of time the debt has to run. Ensure that your cover lasts right until the end of the term, so if your mortgage has 19 years two months to run, you would need a 20 year policy.

If your loan or mortgage is an interest-only deal, and the capital amount repayable does not decrease over time, it might  be better to take out level term insurance.

If your loan or mortgage is a capital repayment arrangement, where the capital balance reduces throughout the term, then you may consider decreasing term insurance. The sum insured reduces over the term in line with the way your outstanding capital balance is expected to reduce. This type of insurance is usually cheaper than level term. It is generally only considered suitable for covering capital repayment mortgages and other decreasing loans.

Critical Illness Cover

Some people add critical illness cover as an optional extra to their life insurance policy. This cover can be very useful if you’re diagnosed with a critical illness and can’t pay bills as a result of not being able to work. This type of cover could pay for things like your mortgage, household bills or even your children’s education that you’ve committed to.

Whatever the reason you are looking for life insurance, make sure you compare the market to get the best deal to suit your needs. Start a quote with us today telling us a bit about you and your lifestyle and we’ll compare a range of the UK’s leading life insurance providers to find you a policy that is right for you. Just see how much you could save!

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