Thinking about life insurance may not be as engaging as some other financial topics. It is, however, crucial that all adults make sure they have the right life insurance for their situation. With that in mind, here are six tips on how to get the right cover at the right price.
Define your needs (and wants)
Firstly, you need to consider your liabilities. In particular, do you have any debts? If you do, would your heirs be able to settle them by selling your assets? Secondly, think carefully about whether or not you have any dependents. These don’t have to be children. For example, if you have pets, you might want to provide for them.
Thirdly, consider your legacy. Maybe you’d like to know that your loved ones would receive a financial gift if you died. They might not need it but it could help them do something to ease their pain. Maybe you’d like to leave a donation to a charity or some other cause that means a lot to you.
Once you’ve figured out the level of cover you need, you can then proceed to work out the length of cover you need. Life insurance policies are divided into whole-life policies and term policies. The latter only cover you for a specific period of time (i.e. the term). This allows you to accomplish a goal such as paying off a mortgage or putting your children through education.
Check what you already have
If you’re in paid employment, there’s a very strong chance you have at least some life insurance as part of your employment benefits. It may be all the cover you need. Even if it isn’t, you can simply buy enough to top up what you already have rather than buying full cover. Please note, however, that if you spend time between jobs, you will need to take out a short-term policy to cover the gap.
Commit to reviewing your life insurance regularly
Once a year or when your circumstances change, make time to review your life insurance. Check that it’s still in line with your needs and wants. If it isn’t, then update your policy as quickly as possible. Keep in mind that the level of cover you need could vary greatly over time.
For example, if you initially take out life insurance to cover a mortgage, the level of cover you need will reduce as it is paid off. If you then have a child it will go up again but decrease as the child ages. If, however, you have another child, it will go up again.
Once you have finished having your family, your need for life insurance will probably go down. The amount you owe on your mortgage will be decreasing steadily and your children will be growing up.
Keep your life insurance policies separate
Couples having joint policies does have the benefit of reducing administration. Unfortunately, it also reduces flexibility. This means you can end up with a policy that suits one person but not the other. Alternatively, you could have a policy that’s OK for both but definitely not ideal for either.
Give yourself plenty of time to renew your life insurance
Doing anything in a rush increases your chances of making costly mistakes. At a minimum, give yourself plenty of time to review your options. Ideally, review your life insurance as part of an annual financial health-check with a financial advisor.
Improve your health
Speaking of health, anything you can do to improve yours could see you benefit from lower life insurance premiums. There isn’t anything you can do about your age. There may be a limit to what you can do about any genetic issues. You can, however, definitely take control of your lifestyle. In particular, if you smoke or vape, you can stop.
For further advice, please get in touch.
