How to make sure your life insurance is right for you

If your circumstances have recently changed, it could be time to buy life insurance or update your existing cover.

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Everyone wants to protect their family to ensure they have a secure future, which is why life insurance can be a valuable benefit to have.

Life insurance typically pays out a lump sum to your family or other dependants should you pass away within the ‘term’ or length of the policy. Your dependants can use the money to pay for bills, cover outstanding debts or pay for childcare.

Having life insurance provides valuable peace of mind that your loved ones will be financially secure if you’re no longer around.

Are your circumstances changing?

Now that lockdown restrictions have eased, life events such as getting married and buying a house can once again go ahead.

If you’re getting married and planning to start a family, now could be the ideal time to consider buying life insurance. Keep in mind that the younger you are when you buy life insurance, the lower your premiums are likely to be.

Taking out joint cover can also be cheaper than two single policies but bear in mind it will only pay out once. Single policies will pay out for each policyholder.

If you’re buying a home and applying for a mortgage, life insurance isn’t a legal requirement, but it can make good financial sense, particularly if you have a young family to take care of. Some mortgage lenders will even insist that you have cover in place before they agree to lend to you.

Decreasing term life insurance is usually the cheaper option as the amount of cover reduces over time – usually in line with your mortgage repayments.

However, decreasing term insurance will only provide enough cover to pay off your mortgage – it won’t be sufficient if you need to support dependants. If you do, you might want to consider level term life insurance instead where the amount of cover remains the same during the term of the policy.

Don’t worry if you’re not sure how much life cover you need – our life insurance calculator can help.

Do stay-at-home parents need life insurance?

If you’re a stay-at-home parent, it’s certainly worth thinking about buying cover to protect your family if you were no longer around. It could help cover childcare costs or income replacement if, for example, your partner had to stop working or reduce their hours to take care of the children.

When should you update your life cover?

If you already have life insurance, it’s worth regularly checking whether you still have enough cover, particularly if your circumstances have changed.

For example, if you’ve recently had a baby, you might want to consider increasing the amount of cover you have. On the other hand, if your children have grown up and are now self-sufficient, you might find you have too much cover and need to reduce it.

Similarly, if you’re moving to a bigger property you may need to adjust your life cover if you are taking on a larger mortgage.

If you have changed jobs or been made redundant, it is also worth considering whether you previously benefitted from death in service cover – many employers offer this benefit which pays out a tax-free sum (often around four times your annual salary) if you pass away while employed by the firm.

If your change in circumstances means you no longer have this cover, you may want to think about increasing the amount of cover you have on your own life insurance policy – or even taking out a policy if you don’t already have one.

If you have any questions about life insurance and your circumstances, we have partnered with broker LifeSearch which has a dedicated MoneySuperMarket team you can call on 0800 170 1963 for any queries or support.

Are you covered for coronavirus?

Life insurance should cover you for coronavirus, providing you were honest on the application form and didn’t cover up any pre-existing conditions. However, it is always best to check the small print of your policy to be sure. If it’s not clear, give your insurer a ring to find out.

When you apply for life insurance, you may now be asked whether:

  • you have tested positive for coronavirus
  • you have been told to self-isolate
  • you have had any coronavirus symptoms
  • you have been in direct contact with someone who is confirmed or suspected to have coronavirus.

If you answer ‘yes’ to any of these questions, some insurers may delay providing cover until you have fully recovered. However, this varies depending on the insurer and it is still important to answer questions honestly.

It’s also worth noting that if you have critical illness cover, coronavirus isn’t usually covered so your policy wouldn’t pay out if you were diagnosed.

Are you covered if you have a mental health condition?

If you have a mental health condition, you should still be able to take out life insurance. The Association of British Insurers (ABI) says that ‘insurers are increasingly recognising the need to provide cover and support to people suffering with mental ill health’.

However, it is important to be honest and make sure you fully disclose your mental health condition(s) – which will be classed as a pre-existing condition – when you apply. If you are not honest, you risk invalidating your life insurance policy.

You may also need to provide your insurer with your date of diagnosis, the method of treatment, symptoms, and details of any previous hospitalisations.

If your insurer classes you as a ‘high risk customer’, meaning you are more likely to claim, you may be charged a higher price. If this is the case – or you are denied cover for a pre-existing mental health condition – it is worth speaking to a specialist adviser. You can find a list on the Mind website.

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