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HOW TO GET THE BEST LIFE INSURANCE AND THE CHEAPEST PRICE

 * Life insurance can pay off your mortgage or provide a financial lifeline for
   your family if you die

By This Is Money

Updated:



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Life insurance is one of the most needed but under-bought insurances. 

If you've got children, or other dependants, or a joint mortgage, the chances
are you'd do well to invest in a life policy. Life insurance can clear your
mortgage if you die and provide money to help your family survive without you. 

But nobody likes to think about dying, which probably explains why only 35 per
cent of UK families have life insurance to cover them if one of the main
breadwinners died unexpectedly, according to Direct Line.

Life insurance isn't the most enticing of purchases but it could end up being
the most important financial product you ever buy, as it will protect your loved
ones if family disaster strikes. We explain what you need to know and how to get
the best life insurance policy and the cheapest price.


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Life insurance: Policies can provide cover until you die, for a set period of
time or until your mortgage ends

Inside this guide:
Life insurance: Need to knowsThis is Money tip: How to get life insuranceWhat is
life insurance and why do you need it?Level term insuranceDecreasing term
insuranceWhole of life insuranceHow much life cover do you need?How much should
you pay for life insurance?Should I get a joint or separate life insurance?How
to find the right life insurance for youCritical illness and income protection
cover




LIFE INSURANCE: NEED TO KNOWS

There are different ways to life insurance buy - online through a price
comparison website, direct from a provider, or through a qualified financial
adviser. 

And there are several things to consider. 

Cheapest won't always mean best, you'll have to think about what the right level
of cover is for you, and you'll have to check what arrangements you may already
have through work. 

Life insurance policies can be joint or individual. It is worth comparing costs
on both, as separate policies can work out better and cheaper for a couple - or
only a little more expensive - and if something terrible happens and you both
die they will both pay out. In contrast, a joint policy will typically only
deliver one payout on the first person's death.

Be wary of 'low-start' policies that start with low premiums that then rise over
time, as these can end up working out more expensive over the duration of the
policy.

Reviewable premiums will only be set for a certain term and will most likely
increase on a date in the future when they are reviewed.

If you write a life insurance policy in trust, it falls outside of your estate,
won't deliver an inheritance tax bill, and will be paid directly to the person
you specify it should go to without the need to wait for probate. Providers or
advisers will be able to help you do this. It sounds complicated, but it isn't
and simply involves filling in a form. 

This guide will tell you in more detail what you need to know about how life
insurance works, what to watch out for, and how to get the best deal.

We also explain how to get quality life insurance at the cheapest possible price
and compare quotes. 


THIS IS MONEY TIP: HOW TO GET LIFE INSURANCE 

When it comes to finding life insurance, going through a broker can help you
compare policies and get the best price. 

This is Money recommends trying Cavendish Online's life insurance comparison
service*, which we think is the UK's best way to get cover at a keen price.

Those taking out policies can pay a one-off fee of $25 and in return all
commission that would usually be received goes back into the policy to make
payments cheaper. 

Alternatively, there is a fee-free option with reduced commission payable by the
chosen provider. 

The service also offers alternatives that cost a bit more with either guidance
or full financial advice.





WHAT IS LIFE INSURANCE AND WHY DO YOU NEED IT?   

Life insurance comes in many different shapes and sizes, with some policies
providing cover until you die, and others set for a period of time, such as the
duration of a mortgage.

The cost each month depends on your health, personal circumstances, level of
cover and the type of policy you opt for.    

The general rule of thumb is that those who own a mortgaged property with a
partner, especially if they have children, should at least get life cover with
the aim of clearing their home loan if they die. 

This means the surviving partner and any children can remain in the house and
will not have to worry about paying the mortgage on a reduced household income. 

In addition to this, many people decide they want their loved ones to be better
catered for than simply having the mortgage paid off and take out policies for
more. 

There are different types of life cover.


LEVEL TERM INSURANCE 

Level term insurance offers a set payout for a set period of time. 

It can be taken out in conjunction with your mortgage term, or a planned working
life, and will pay out a pre-agreed sum if you die during that period.


DECREASING TERM INSURANCE 

Decreasing term insurance covers you with a declining sum for a set period of
time. Usually used with a repayment mortgage, this reflects the fact that the
outstanding debt will fall over time. 

It is cheaper than level term insurance.


WHOLE OF LIFE INSURANCE 

This is a policy that lasts for the rest of your life. This kind of insurance
pays out a set sum whenever you die. 

Policies are usually made up of an insurance element and an investment element.
This is often used to cover an expected inheritance tax bill. 

Whole of life insurance is the most expensive form of life insurance.


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How much life insurance do you need? Make sure you consider other elements such
as death-in-service or pensions 


HOW MUCH LIFE COVER DO YOU NEED?

You will probably want your life insurance payout to cover any remaining
mortgage, pay for a funeral, and also leave some money to help with living
expenses, but the more cover you take out the pricier it will be. 

If you have a mortgage, then taking out decreasing term assurance will ensure
that your mortgage is repaid when you die and is likely to be the most cost
effective option.

If you are on a capital repayment mortgage and simply want to cover that, taking
out a decreasing term policy may be best; the payouts on these type of policies
can reduce over time as the balance of your outstanding mortgage falls,
resulting in lower premiums.

Even though it will be more expensive, some people may choose to take out level
term life insurance until a certain age anyway. For example, until their
children are old enough to leave school or university - or even as an insurance
to compensate their family if they die younger than average. 

Remember if you are on an interest-only mortgage then your debt is not steadily
being repaid. So here a level term life insurance policy that will pay out a
fixed lump sum when you die can clear the outstanding capital balance.

If you think you will end up moving home to a more expensive property as life
progresses, it may be worth buying extra life cover earlier on, as it tends to
be cheaper the younger you are.

There is also increasing term insurance, which increases its payout either by a
fixed amount each year, or in line with inflation. This type of insurance is
designed to factor in rising living costs. Premiums will also rise as a result,
however.

One key thing to consider when taking out life cover is what arrangements you
already have in place. 

For example, employers can offer some form of death in service benefit, which
may be a multiple of your salary. Pension pots built up can also be passed on to
your family if you die.

Check with your employer and pension provider what benefits you have before
assessing the level of cover that you need. 


HOW MUCH SHOULD YOU PAY FOR LIFE INSURANCE?

Life insurance premiums are calculated depending on your history, health and
age, among other factors. 

For example, a 40-year-old non-smoking plumber with a clean bill of health can
expect to pay anywhere between $13 and $22 a month for $100,000 worth of cover
on a level term for 25 years. 

For the same person, who happened to be a smoker, they could expect to pay
premiums between $18 and $22. 

Other circumstances such as marital status and credit score may also be used to
calculate your premium.

The amount of cover a person needs will depend on their personal circumstances.
Things such as outstanding loans, the number of dependants and income
replacement should all be taken into account, as well as how much you can afford
to pay each month in premiums.


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Premiums are calculated depending on your history, health and age, among other
factors


SHOULD I GET A JOINT OR SEPARATE LIFE INSURANCE?

One thing you and your partner will have to consider is whether you want to opt
for separate or joint life insurance. 

One of the most attractive things about having your own separate life insurance
policy is that it remains unaffected if your relationship ends. 

On top of this, if both you and your partner die, separate policies will result
in two payments. Separate policies are more expensive, however.

With joint life insurance, the cheaper option, there will most likely only ever
be one payout in the event of either you or your partner's death. 

Depending on your policy terms, it will either pay out when one of you or both
of you dies. 

If you do take a joint policy, for young families, it's probably best to make
sure the policy will pay out when the first person dies. Some policies pay on
second death, but these are primarily meant for inheritance tax planning. 

The downside to taking a joint life policy is that if one partner dies, the
policy pays out and then the remaining partner or parent has to take out a new
policy. 

Depending on their age and circumstances, this could cost significantly more
than having taken out two single policies at the outset. 


HOW TO FIND THE RIGHT LIFE INSURANCE FOR YOU

For most simple life insurance needs, there isn't a great deal of difference
between one policy to another.

However, it's important to consider how insurers may underwrite people with
specific medical conditions, so a good analysis of the market and the true price
of the cover is vital for those without a completely clean bill of health.

You can buy life insurance by phone, from comparison sites online or directly
from a company. 

You can also go to an independent financial adviser, who can calculate how much
your family is likely to need. 

Life insurance usually pays commission to the broker or financial adviser
involved and this adds to the cost of policies. There are ways to bring this
down, however.

This is Money recommends life insurance comparison service Cavendish Online*,
which allows you to pay a one-off $25 fee and have all commission go back into
the policy to make payments cheaper. You can choose this option if you go it
alone for low cost payments and do a comparison yourself. Alternatively, if you
need help and are happy to pay more, you can choose to get guidance, or full
advice.


CRITICAL ILLNESS AND INCOME PROTECTION COVER 

There are other forms of insurance which can protect you and your family if
catastrophe strikes.

For example, critical illness cover works in a similar way to life insurance,
but instead pays out if you are diagnosed with a defined critical illness. This
is sometimes available as a combined policy with term life insurance.

Income protection insurance can also help replace loss of earnings due to ill
health, or accidental injury. The policy will pay out until you either start
working again, retire, or die, or at the end of the policy term. 





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