When taking out a life insurance policy, you’ll rely on the cover to offer stable financial protection to your family after your death. Needless to say, it’s best to do some research before choosing and committing to an insurance policy. This will ensure you’re receiving the best coverage possible at the best value. This post offers a guide to life insurance options, as well as throws in some tips on how to manage it.

Why should you take out life insurance?

Before choosing a life insurance policy, it’s recommended that you determine exactly why you need insurance coverage. Below are some examples:

#1: Buying a new home

Life insurance policy payouts can provide a partner or family assistance in paying off a property mortgage after your death.

#2: Having children

If you die before your children are adults, a life insurance policy payout can provide children with education and care while they are growing up.

#3: Leaving a legacy

Life insurance policies can offer any surviving relatives an inheritance upon your death. This is known as ‘leaving a legacy‘.

#4: The funeral costs

Some life insurance policies provide the remaining family members with a lump sum to pay for funeral costs.

How much coverage is suitable?

Typically, the more protection or coverage offered by the life insurance policy, the higher the premium rate. For instance, if you’re seeking to cover a mortgage, you should consider how much coverage you will need for this. Life insurance calculators can be used to clarify the amount.

If you’re looking to provide family members with a stable income after your death, it might be useful to determine the current expenses and consider any possible future costs. Weighing up these amounts can help you identify an accurate figure.

If you’re over the age of 50 and are interested in leaving a legacy for your family, or to help the family pay funeral costs, the policy coverage is dependent on what you can afford to pay regarding the insurance premiums.

Read more about the various types of life insurance policies.

How long should the insurance policy last?

When purchasing a life insurance policy, the coverage can last for a fixed length of time or for the rest of your life. Policies lasting a set period is known as a term. This is beneficial if, for example, you want to cover the house mortgage. Insurance policies to help with household expenses tend to last 25 years or less offering the family a financial safety net. Term insurance is often more appropriate than a long-lasing insurance policy.

If you plan on remaining healthy and outliving all of your relatives, then good for you! Unfortunately, term insurance has a disadvantage in that there is no payout if you live longer than the policy term. In this case, it may be worthwhile considering a different type of insurance policy. On the other hand, if you plan on taking out a policy with the aim of providing an inheritance, the whole-of-life insurance option could be a better choice.

Should the level of life insurance change with time?

If you choose to take an insurance policy out with the aim of covering a mortgage, the amount owed will fall as monthly repayments are made. So, it makes sense that the level of life insurance reduces with the loan amount. This is known as decreasing term insurance where premium rates are lower than the level term insurance. Level term insurance remains fixed through the policy term.

Should you obtain life insurance coverage for your partner?

In the majority of cases, the primary earner in a family would take out a life insurance policy. However, even if the individual’s partner earns less or is a stay-at-home parent, there can still be a serious financial impact if they die. If you have children, you may need to consider the costs of childcare and domestic work.

When taking out coverage for both partners, you could purchase a joint life insurance policy or use separate policies. The join insurance option will provide a payout on the first death but ends after this occurrence. Separate policies are more beneficial offering financial payouts when both partners die. This is considered an increased level of protection for people left behind. The second option can be more costly, but it’s worthwhile carefully comparing the different policy prices to see whether buying separate policies is the best alternative for your needs.

What are the other factors influencing the cost of life insurance?

In addition to the coverage of the insurance and how long it will last, there are several other factors to consider which can influence the size of the premiums. Below are the different factors to take into account.

• Your biological age
• Your level of physical health
• Your current lifestyle
• Your family’s medical history
• Hazardous hobbies and employment can influence the size of premiums. For instance, if you’re a mountain climber or pilot, the premium price can be inflated.

How is life insurance premium calculated?

• Reducing any effort and saving on tax
• A trust

The factors above ensure that your remaining family members may receive payment with the reduced hassle and low tax charges. Moreover, writing a life insurance policy in trust refers to the coverage being ‘ring-fenced’ outside other assets, such as investments, property and savings.

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