Life Stages?

The decision to take out a life insurance policy is more about the stage in life you have reached than simply your age.

No one wants to give the matter too much thought, but there is something very reassuring about knowing that, if the worst were to happen, your family would be financially secure. The trouble is, reassurance comes at a price, and the longer you put off starting a policy the greater that price is likely to be.

Life insurance is designed to let people provide for their families financially when they die. Many people decide they need to take out a life insurance policy when they start a family, or when they buy their first property and want to make sure they would not leave significant debts behind for their loved ones to deal with.

The different types of cover

There are two main types of life insurance. One is a Whole of Life (WOL) policy, under which the policyholder will pay a premium each month, and on his or her death a predetermined sum is paid to the beneficiaries. Since it is certain the policyholder will die, this kind of cover tends to be the most expensive.

The other type is Term Assurance (TA), which includes a number of different kinds of policy. Here, policyholders pay a premium each month for a set term and, should they die before the term is over, the insurance company will pay a specified sum to the beneficiaries. If the policyholder is still alive at the end of the term, there is no payout.

With a Level Term Assurance (LTA) policy, the sum paid to beneficiaries is set at the start and remains the same throughout the term. There are also Decreasing Term Assurance (DTA) policies where the sum payable on death reduces over the course of the term. These policies are often taken to cover a mortgage debt, with the potential payout shrinking at the same time as the mortgage is paid off. Another variation is the Family Income Benefit (FIB), which pays out an income for a set term after the death of the policyholder, rather than a lump sum.

It is possible to buy life insurance with options that allow you to extend the term – for example if you should extend your mortgage term, or review your needs and convert to another type of policy, without having to start the process from scratch. But these options are unlikely to be available at the cheapest end of the market, so it is worth getting advice to make sure you have they type of cover you need.

For just a small amount more than the cheapest policies, you can get far better cover. It is possible to buy life insurance direct online, and the prices can look very low, but it's wise to get advice to make sure you get what you need.

Prices

Existing health conditions and whether you smoke or not will make a difference to the premiums you will pay, but another key factor is age. On a 15-year, level term policy with £100,000 payable on the death of the policyholder, monthly premiums for a non-smoker would cost about £6.13 at 28 years old (or £1,103.40 over the course of the term). That rises to £8.62 at 38 years old (or £1,551.60 over the term). The cost then rises significantly at 48 to £16.84 a month (or a total of £3,031.20 over the term).

Choosing a policy

The decision to take out a life insurance policy is more about the stage in life you have reached than simply your age, and for some people it is an unnecessary cost. It's more to do with your individual circumstances rather than your age.

You could be young, renting a property and with no dependents. In that case, you might be more concerned about what would happen if you were unable to work through illness or an accident than whether you need life cover. In that case you might want to think about income protection plans (IPP) or critical illness cover (CIC).

Similarly, when you are older, your children have grown and the mortgage may have been paid off, so you may need less life insurance but more income protection or critical illness cover.

Whatever your stage in life, it's important to periodically review your protection plans with your broker, to ensure that you have the right plans in place, and that they are still doing what you need them to do.