How to get life insurance – and things to look out for

Life insurance can offer essential protection, but where should you buy it and what should you consider? John Lappin explains.

You can buy life insurance policies direct from an insurer, from a price comparison website, from a specialist life insurance broker, from your mortgage adviser or from a financial adviser or financial planner.

Some will recommend policies as a matter of course. If you are taking out a new mortgage, your mortgage adviser should discuss life and other insurances or pass you to someone who does. A financial planner may be sorting out your pension and investments and may suggest types of insurance related to your financial plan.

Specialist brokers also exist although it is best to clarify whether you are receiving financial advice or not. Some provide regulated advice over the telephone and that means you are more protected from receiving bad advice by various Government schemes. If you are buying direct, you are a little less protected.

You can complain about poor advice, but not where you bought direct. Itis important to think about and check the status of your interactions with a broker. One final point – some advisers and brokers are restricted – i.e. they choose from a set number of insurers.

Some look across the whole market and are generally described as independent. Some run panels, which they keep updated. But it may make sense to consider whether choice is really limited or not.

Thinking about life insurance? Here’s what you need to know first

When is it appropriate to think about life cover and other insurance?

The key to this really is whether you have dependents and big outgoings. It makes sense to at least consider life insurance when you are starting a family or buying a home.

It may also make sense to cover your rent – maybe with life or income protection – if you have little other backup from family, though as we say at the moment the market and most advice is geared to a mortgage.

It is important, of course, to keep up payments on your mortgage so variously life insurance, critical illness insurance and income protection can all help.

How do I budget for this?

You always need to consider what you can afford. There is no point paying premiums for a short period of time so look for policies that suit your budget but balance that with your needs.

That is why specialists, mortgage advisers and financial planners can really help you decide. But if you just want some simple cover shopping around online may work for you too. Beyond life insurance, you need to consider what you are covered for.

And note that you can mix and match covers – so some life cover, some income protection for example. Some advisers use a menu system to offer this mix of covers. That can also help with budgeting and – the sector always argues – some cover is better than none.

What should I disclose?

This is one of the challenges regarding insurance. For relatively small amounts of cover at a young age, then you will not have to answer many questions before obtaining cover.

For more complex cover – say critical illness or income protection or a very high sum of life cover, the insurer may ask lots of questions because it is essentially ‘underwriting’ your health, life and more.

If you have a history of illnesses, are overweight, drink too much or perhaps if you have a risky occupation, an insurer will want to take a close look at various information including perhaps seeking clarification about various health conditions from your doctor.

Some insurers may turn you down, but there are very specialist brokers that can help for higher premiums. Not disclosing something significant remains a big source of not receiving a payout.

Do insurers always pay out?

First, it is very rare if not impossible to turn down a life insurance claim. Even suicide is covered although usually not for the first year of a policy.

For other claims such as  terminal illness, critical illness and income protection there are very high rates of payouts. According to the Association of British Insurers, around 98% of claims are paid. A small number are denied because of a failure to disclose important information. Talking this through with an adviser should help.

We do know that in the past and indeed in some other countries, there is a sense that insurers are reluctant to pay. The UK’s statistics do seem to suggest that the sector’s house is in order.

One pertinent question may be about speed of payout. Some insurers are a little slower than others. Your broker may know.

One final point

It may make sense to check and see if your employer already offers some types of insurance such as ‘death in service’ or group critical illness.

You may be covered to a sufficient level already, but, of course, only while you are employed by that employer.

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