It takes careful planning to choose the right life insurance policy for yourself, family or business.
Level of Cover
Your first consideration should be the level of insurance cover you require. How much money would your dependents need to continue to live with the same lifestyle? How much money might be needed in order to pay off your debts? You should think about insuring your life for approximately 5 to 10 times your current salary.
Type of Policy
You then must decide on the type of Life Assurance you require; do you want a policy that pays out a lump sum or one that provides an income? Do you want cover for a specified term or to cover you indefinitely until you die?Whilst Reviewable Life Insurance policies have the lowest premiums initially, Guaranteed policies will work out much cheaper over the medium and long term. This is because as the years go by, Reviewable premiums increase whereas Guaranteed policies have their prices fixed and guaranteed forever.
You should also consider whether you would benefit from taking out 2 single life policies rather than a joint life policy. A Joint Life Insurance policy pays out if either policyholder dies, and will then automatically terminate. Unfortunately, this leaves the second person uninsured and probably at an older age, when they may have trouble in taking out a new policy. Taking out two separate policies may initially cost a little more, but you will get double the cover and peace of mind.
Optional Extras
- Waiver of premium: If you cannot work because of illness or injury, the insurance company will pay your premiums to maintain the benefits under the policy.
- Critical Illness: This will cover you against the risk of you having a serious illness such as a heart attack or cancer. If you develop a critical illness, then a lump sum will be paid to you. By combining Level Term Life cover with Critical Illness in the same policy, you will find that the premiums are significantly cheaper than buying two separate policies.
Business Cover
There are several policies to take out to protect a business, rather than a family.
Key Person Insurance
You may consider taking out this insurance if you rely on a key employee who is essential to the profitability or even the existence of the business. This will protect your business from the disruption which might follow the death of such a colleague, and may also be used to cover costs of finding and training a successor.
Partnerships
A business could be at risk if one of the partners dies. Life insurance can help the other partners to buy the deceased partner�s share of the business from the estate.
Directors� Share Protection
Life insurance can protect you and the other surviving directors from any withdrawal of capital following the death of a director. The payment from a life insurance policy may help with the purchase of the deceased director�s share of the business.
Buying the Policy
Once you have decided on the level of cover and any optional extras, you should then compare premiums and the various Life Assurance companies. You should also read the terms of the policy to check any restrictions. When you have decided on a policy you will have to complete and sign a proposal form, on which you will have to answer questions concerning your age, occupation and health. You must answer all questions truthfully. If you fail to do so, it can, in some circumstances, mean that your policy will not pay out.
Final Advice
You should seriously consider putting your policy in trust. This means that the amount payable after your death will not be affected by Inheritance Tax.
It is also important to review regularly your life insurance needs to ensure that they keep up with your changing personal and economic circumstances.
