How to choose the right life insurance policy and ensure your family is protected

Life insurance is one of the most under-bought insurances, but Covid-19 may be starting to change people’s minds. 

High numbers of Covid cases and deaths reported over the past two years prompted 5.8million UK adults to think about taking out this type of cover, according to research by insurer Canada Life.

There are still millions that are left uninsured, however. Canada Life says 32.9million people in the UK have never thought about life insurance or do not have an active policy in place.

The pandemic has prompted 5.8million (11 per cent) of UK adults to think about taking out life insurance, according to research by Canada Life

This leaves many families exposed, particularly if the main breadwinner dies.

Life insurance is a grudge purchase, mainly because policyholders will never see any benefit. The cover is activated when they die, and a pay-out is made to the beneficiaries. 

But life cover is one of the best ways to ensure the financial security of your loved ones if the worst happens.

If you’re on the lookout for life insurance to protect your family, this guide will tell you all you need to know about how it works, what to watch out for and how to get the best deal.

We also tell you how to get the best quality life insurance to suit your budget and where you can compare quotes.

What is life insurance and why do you need it?

At its simplest, life insurance pays out a lump sum to nominated recipients when you die. 

This amount can be paid out to your loved ones to cover unpaid debts such as mortgages, car and personal loans. 

Any money left over can be put towards future costs such as university tuition for children, or can be invested to provide a future income or supplement a pension.

Luke Barber, business development manager at Cavendish Online, explains: ‘When considering life insurance, you need to think about the different areas that may require protection, whether it be your mortgage, protection for other unsecured debts, or protection for your family including your children. 

The areas that require protection are likely to change throughout your life too, so it’s always worth speaking to an adviser so this can be researched effectively.’

Best and cheapest life insurance

This is Money has teamed up with Cavendish Online to offer our readers the cheapest life insurance quotes available on the market. 

You can get a fully underwritten quote online yourself, or speak to a fully qualified independent adviser who can compare life insurance and recommend the best option for you from a wide range of insurers. 

>> Get a life insurance quote and speak to an adviser   

How much cover do you need?

The amount of life cover you need depends on your family’s financial circumstances. 

Barber says: ‘With respect to protecting a debt such as a mortgage, you would normally look to protect the balance of the mortgage. 

‘But when you are protecting other areas it’s not always as straightforward, and this is where speaking to an adviser can be particularly useful.

‘When considering your life insurance needs you need to ensure that the policies are affordable to you now, and in the future, to the best of your knowledge.’

James Buckley-Thorpe, founder of life insurer Bequest, adds: ‘If you have any other cover, such as work insurance for death in service, a pension or critical illness cover, these could also help you determine how much you need. 

‘Is your work coverage enough? What happens if you leave your job and are no longer covered? What exactly does your critical illness cover?’

James Buckley-Thorpe of Bequest says life insurance is cheaper the younger you are

When do you need it and what influences the cost?

You can take out life insurance at any time. But the reality is that people are often ‘triggered’ into buying life cover at vital life stages such as buying a home, re-mortgaging, getting pregnant or having a child, getting married or moving in with a life partner.

Life insurance premiums are influenced by several factors, including age, your family’s medical history and whether you have any pre-existing medical conditions. 

These factors could push up your premiums if your life insurance provider deems you to be a high risk.

So, the earlier you take out a policy the better. Buckley-Thorpe adds: ‘Life insurance is usually cheaper the younger you are, so planning ahead is a great idea. Getting on the insurance ladder young can help you save money in the long run.’

What if you’re on a low budget?

If you’re on a low budget there are free and low-cost options to consider. 

Aviva, for instance, offers free parent life insurance with £15,000 for each parent for each child that they have.

However, it is only available from the time each child is born until they are four years old.

It means you can get life insurance worth £30,000 in total for a year if you and your partner both successfully apply.

Aviva also offers long term life insurance from £5 a month, but it’s possible to find cheaper products than that.

Financial comparison site confused.com says it offers cover from £4.74 a month, while moneysupermarket.com claims to have providers offering cover from just £4.56 a month.

However, customers should check what is covered by these low-cost policies and how much they will pay out, as this may be less than required. 

Should you choose based on price?

Price shouldn’t be the only thing to consider, as the cheapest life cover isn’t always the best. 

If you pay a little more, see what other benefits you can get with the policy as these days insurers offer plenty of extras.

Some insurers now offer extras, such as a probate helpline, along with life insurance

These could include help with sorting out finances when a family member has died, for example, as well as health and wellbeing support.  

Dan Crook, protection sales director at Canada Life, says: ‘It’s sensible to take your time when selecting the policy that’s right for you and not simply be attracted to the cheapest price. 

‘Considering the terms associated with the policy, and any support services that come with it, is a key part of the decision-making process. 

‘At Canada Life, for example we can offer benefits such as a virtual GP, mental health support and a wellbeing programme as well as bereavement counselling and a probate helpline.’

Will my mental health diagnosis mean I pay more?

Lock down and social distancing restrictions has impacted on people’s mental health. Nearly half of UK adults (47 per cent) have experienced mental health challenges, according to Scottish Widows.

Few come clean about their mental health diagnosis with their insurer, however.

Scottish Widows says that less than half (44 per cent) of applicants declare mental health conditions for fear that it will affect their ability to take out life or critical illness cover.

Lock down and social distancing restrictions has impacted on people’s mental health but declaring a mental health condition doesn’t necessarily mean higher premiums

But the insurer says that contrary to these misconceptions, declaring a mental health condition does not always mean higher premiums and doesn’t exclude someone from getting protection cover.

‘People are confused about how mental health conditions affect their critical illness cover or life insurance, which prevents them from getting the right support,’ says Rose St Louis, protection director at Scottish Widows.

‘Insurers aren’t trying to catch people out – we are there to help our customers. It’s vital we have the right information to do this.’

Should you get a joint policy?

You can get an individual policy or a joint one with your partner. While separate policies mean more admin, the first advantage here is that your policies will remain unaffected if your relationship ends.

What’s more, if both you and your partner die, separate policies will result in two payments. 

However, having two policies does work out to be more expensive so you must consider your budget.

If you choose a joint policy, make sure you know the terms of payment. Depending on your policy terms, it will either pay out when one or both of you dies. 

Young families should consider taking out policies which pay out when one person dies so that the other partner is not left struggling financially.

The downside to a joint policy is that when it pays out, the surviving partner will have to take out a fresh policy. Depending on their age and circumstances this could cost a lot more than if two separate policies are taken out at a younger age.

Whether you choose joint or individual policies there are also other things to consider.

How and when to find the right cover

it is a good idea to compare various providers or get advice to find the right policy. 

This is particularly the case if you are looking for a policy with added benefits, or you have pre-existing conditions. 

You can get life insurance directly through providers over the phone, or by completing an application form online. 

There are also many comparison sites which can give you a good picture of the various policies on offer. 

If you’re unsure about how much you need, an independent financial advisor or specialist life insurance broker can give help you calculate this.

Barber adds: ‘If you approach an insurer directly, they will have a comprehensive knowledge of their own products, but if you speak to a broker, they will have a great knowledge of all products which are offered, from various insurers.

‘When you purchase a product directly form an insurer, they will often take 100 per cent of the commission they’re entitled to, whereas brokers often look to offer a discount, which means the final premium will normally be lower.’

This post first appeared on Dailymail.co.uk