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Life insurance: the big questions

Find out what topics you are likely to discuss before speaking to a life insurance advisor

Prepare yourself for the application process with our handy guide

By Mehdi Punjwani

Published: 19 January 2021

Looking for life insurance?

Life insurance can be one of the most important types of financial protection we ever buy, yet deciding on the type of policy or amount of cover you need is rarely straightforward.

That’s why gaining as much insight as possible before making your decision is always wise. This guidance might include seeking professional advice where the following questions can be asked.

Do I need life insurance?

If you die unexpectedly life insurance could help take care of the financial needs of your dependents.

Life cover can help clear a mortgage or other outstanding debts and also provide a lump sum or regular income to help your loved ones with the cost of day-to-day living.

You’ll also have the peace of mind that should anything happen to you, they’ll be taken care of financially.

Of course, it’s not just a question of whether you need life insurance. There are other considerations such as how much insurance should you buy and how long the policy should last. Read more with our guide to Do I need life insurance?

How do I choose the best life insurance policy?

Deciding what life insurance policy is right for you depends on a few factors.

It’s good to start with how much life insurance you think you’ll need and whether you already have any cover in place, through your employer, for example. This is known as death in service cover.

You can then look at the various different types of cover available. You might want a level term policy that keeps the same pay out all the way through, or decreasing term cover that reduces over time as your mortgage debt lowers.

Alternatively, you could take out whole-of-life cover which runs until you die and then pays a tax-free lump sum to our loved ones.

It’s also the right time to consider critical illness cover. This type of insurance gives you financial security should you be involved in an accident or be stricken with an illness that means you can no longer work.

If you’re over 50 you may want to consider a specialist policy – cover usually becomes more expensive as you get older, but an over 50s life insurance policy offers guaranteed acceptance.

When finding the best value policy, MoneySuperMarket can help. We’ll ask you a few straightforward questions and then compares quotes from our leading panel of insurance providers to give you guaranteed prices.

How do I decide how much life insurance cover I need?

Deciding how much cover to take out also depends on a range of factors.

Enough to clear your debts when you pass – the largest of which might be a mortgage – is a good starting point.

But you may also want to add in enough for your dependents by covering living costs and education – and even making provisions for your own funeral. Specialist funeral plans are also available so you can plan ahead.

Our guide on How much life insurance cover will I need? takes you through it step-by-step.

What else should I look for in a life insurance policy?

When taking out a life insurance policy, you want to make sure it’s suitable and check for exclusions.

For example, while you’ll be covered for death from an accident or unexpected illness, if you have an undisclosed illness or drug or alcohol dependencies, you may not be covered. You’ll also likely face higher premiums if you’re a smoker.

Our guide to pre-existing conditions explains more.

More life insurance tips and tricks

Don’t delay. The older you get the more premiums rise, but you can lock in fixed premiums from an early age to keep your costs down

Income protection

According to MoneySuperMarket data (October 2019 – September 2020)

  • A joint policy with your partner rather than two single policies could be cheaper. But be aware that once one of you dies while the other will receive a pay out, the policy will end
  • Shop around for cover and don’t take the first quote offered. You may be able to find the same value cover for a much lower price
  • Consider taking out the policy in trust to so the pay out isn’t liable for inheritance tax

What other questions will you be asked when seeking life insurance advice?

  • Are you a breadwinner?

Could your family cope without your income, or be able to pay the mortgage? In short, if anyone relies on your income, life insurance is worth considering.

  • Are you a stay-at-home parent?

Even if you don’t bring in a salary, your death would change the family dynamic meaning there might be a need to pay for childcare and housekeeping.

  • How would your dependents be financially secure?

Life insurance pays out either a lump sum or a regular income on death, thus providing a financial safety net for your loved ones.

  • Do you understand the different types of cover on offer?

Life insurance has many and varied types. The most popular type is level term insurance. The policy runs for a set term and the pay out remains the same whenever you die.

  • Will you need whole-of-life cover?

Both level and decreasing term insurance pay out only if you die within the term. The alternative is whole-of-life cover, which pays out whenever you die.

  • Will you prefer a single or joint life policy?

If you are in a couple, then you might be tempted to purchase a joint life policy because it’s cheaper. But it’s best seeking advice before you do, because while cheaper, the joint cover only pays out once when one of the policyholders passes away. 

  • How much cover do you need?

The amount of cover you need is known as the ‘sum insured’, which you should select according to your budget and requirements.

  • Will you need policy add-ons?

Insurance companies offer add-ons to life insurance policies for extra security in certain circumstances. If you opt to pay for ‘waiver of premium’, for example, your premiums will be paid automatically if you can no longer work due to an accident or illness.

  • Will you need critical illness cover?

One of the most common add-ons is critical illness cover, which pays out the sum insured if you are diagnosed with a serious condition or illness. The list includes certain types of cancer, strokes and life-threatening injuries but will vary from provider to provider.

Income protection

According to MoneySuperMarket data (October 2019 – September 2020)

  • Do you want to make the policy ‘in trust’?

Life insurance in itself isn’t taxed, but the proceeds from a life insurance pay out could form part of your estate when you die.

This means that your family will be liable for inheritance tax (IHT) at 40% on the value of the estate above £325,000 (or £650,000 if you if you are married or in a civil partnership). Which, when you consider a family home is often worth that much on its own, is easy to meet.

A way to circumvent this is to write the policy ‘in trust’, which means it is placed apart from the estate. The taxman can’t then touch this money and so your family (or other beneficiaries) will get the full amount.

But it’s definitely a good idea to seek the advice of a specialist on IHT as they will know the exact implications of putting your life insurance in trust.

Compare life insurance

It’s quick and easy to find a better deal for life insurance with MoneySuperMarket.

Just tell us a few details about yourself and we’ll compare quotes from our leading panel of life insurance providers to show you the guaranteed price you’ll pay for a policy.