Have you got the protection you need? - 7 questions for life insurance

Getting life insurance is a big decision. Firstly, the policy wording needs to cover your needs (you don’t want your family missing out on a payout on a technicality). Secondly, the premiums should reflect the policy value - nobody should overpay to protect their loved ones in a crisis.

However, finding the right policy can be a challenge due to complex legal language and a lack of knowledge about protection. To help, our financial planners have offered seven questions to ask yourself (or the provider) when exploring life insurance options.

#1 What kind of insurance do I need?

For life insurance, a key consideration is how long you might need the cover for:

• Term life insurance covers you for a specific time period (e.g. 10 years). Once it expires, you can no longer claim a payout from that policy upon death.
• Whole-of-life (permanent) insurance lasts until the end of your life. It can also include a cash component that can grow over time.

The most suitable type depends on your unique goals, needs and circumstances. For instance, a young couple early in their careers might need to prioritise affordability when choosing a policy (most likely, term life insurance).

#2 How much cover do I need?

It’s easy to underestimate how much life insurance your loved ones might need. It can be hard to quantify the large sums involved. After all, a £100,000 payout sounds like a big number - but would it cover your outstanding mortgage?

A financial adviser can help you assess the level of cover you need. However, a good starting point is to use the 10 Rule when calculating a future payout (i.e. 10x your annual earnings).

#3 How long do I need the policy for?

This is related to the first question, but takes a more strategic view - looking at things primarily from your loved ones’ perspectives. In particular:

• If you have a young family or other dependents, term life insurance might be suitable until your children leave home.
• If you are a homeowner, term life insurance could be useful to cover your outstanding mortgage term (e.g. 25 years).
• Those in later life might want to explore whole-of-life insurance in light of their life expectancy, to help with estate planning and/or inheritance tax (IHT) planning.

#4 What if my circumstances change?

A life insurance policy might suit your needs now. However, what if an unexpected turn arrives, such as a divorce or moving house (taking out a bigger mortgage)?

Life changes, so your policy should be flexible enough to change with it. Many policies have “in-built” provisions to help with this - e.g. allowing for riders to be added later (for critical illness, disability, children, etc). However, some policies are more adaptable than others.

A financial adviser can be critical in helping you examine different policy wordings to ensure you buy a policy that evolves with you.

#5 How much does it cost?

Monthly premiums vary widely for life insurance. In late 2024, the national average stood at £30-£35 per month. However, policies can be as cheap as £10 per month, or over £100 per month (e.g. for benefits like the guaranteed payout of a whole-of-life policy).

Here are some of the key factors that can affect the cost of monthly premiums:

• Age
• Health
• Lifestyle
• Occupation
• Policy type

Certain factors might be outside your control. However, consider the areas where you could make lifestyle changes to lower premium costs - e.g. smoking, improving general health (e.g. weight) and managing pre-existing conditions as best you can (e.g. regular medical checks).

#6 How stable is this insurer?

You want to be confident that the company behind your future payout will last as long as your policy. The last thing you want is your provider going bust before you need to make a claim.

A financial adviser can help you do robust due diligence here. One idea is to check rating agency websites like S&P (Standard & Poor's) or Moody's. Another option is to consult the Association of British Insurers (ABI) and Financial Conduct Authority (FCA) websites.

You can also check Companies House and other official record-keeping bodies to check how long the insurer has been in business. Also, check for customer reviews and complaint records.

#7 Do I need professional advice?

Choosing life insurance is a high-stakes activity. If you get the decision wrong, it can be hard (and costly) to change policies later. It’s best to get it right the first time.

This is where a financial adviser can help, particularly with crucial tasks such as:

• Analysing your specific needs and goals.
• Explaining complex features in plain English
• Helping you balance cost with adequate protection
• Guiding you through the underwriting and application process.

Invitation

If you’d like to ensure you’re taking the right steps to protect your family wealth and safeguard your financial future, please get in touch.

Your capital is at risk. Investments can go down as well as up, and you may not get back the amount you originally invested. Past performance is not indicative of future results. Diversification does not guarantee profits or fully protect against losses. Tax treatment depends on individual circumstances and may change in the future. This content is for information only and does not constitute personal financial advice. Readers should seek independent financial advice before making any investment decisions.