How to buy life insurance and buy it wisely

Don’t pay over the odds for life insurance.

Life insurance can be an expensive but necessary investment. Should you die it can offer a crucial financial safety net for your loved ones. Yet premiums can be pricey, with factors like your age, lifestyle and health determining what you have to pay.

Given you could be paying life insurance premiums for decades to come, it’s crucial you don’t rush in and buy the first policy you see. To get the best deal possible, read on for some key tips about buying life insurance wisely.

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How to buy life insurance

If you’re considering life insurance, there are a few main places you can go for a quote.

  1. Comparison sites
  2. Mortgage providers
  3. Banks
  4. Specialist brokers
  5. Credit card companies
  6. Independent financial advisers
  7. Retailers, such as major supermarkets

What should I expect when I apply for life insurance?

So you’ve worked out what kind of life insurance is right for you and you have gotten some quotes. The next step is actually applying for a policy. Here’s what you can expect:

You may be expected to provide the following information:

  • Name
  • Age
  • Phone number
  • Address
  • Height
  • Weight
  • Employer
  • Hobbies
  • Smoking status
  • Alcohol and substance use

Medical exam

When signing up for life insurance you’ll generally have to answer several questions about your medical history and current health (unless you’re applying for a policy which has no medical underwriting process – an over-50s deal for example).

You probably won’t be asked to do a medical exam if you’re young, you’re not a smoker and you haven’t had any major health issues.

Some people might be asked to undergo a checkup though, so the insurer can better calculate your premiums. If so, the provider will generally pay for the exam and will let you choose where and when it takes place.

Which type of life insurance policy should I buy?

When considering which life insurance to buy, you have two broad choices: term life or whole life.

Term life insurance

Term life is generally the more affordable type of life insurance, and as the name suggests it’s a policy which has a term limit, typically lasting for 5, 10, 20, 25 or 30 years.

It’s typically cheaper than whole life because there’s the very real possibility that the insurer will never have to pay anything out. If you survive beyond the term limit the insurance company doesn’t have to hand over a penny.

Term life insurance can be a bit harder to buy the older you get, as these policies often have quite strict medical screenings.

They can be incredibly useful if you have large debts, such as a mortgage, as you can protect yourself and your family while you pay them off.

Whole life

Whole life insurance policies will pay out a lump sum when you die, whenever that day is. Premiums can be more expensive than with term life as the insurer knows that it will have to hand over money at some point.

Certain types of whole life policies will put your money into an investment fund, tying the performance of your investments to the size of your pay-out. Should they do well, your loved ones will profit.

Over-50s policies are a form of whole life insurance too, designed for people roughly aged between 50 and 80. They typically won’t even ask any questions about your health, so they can benefit older people who have a pre-existing medical condition.

What affects how much coverage I need?

One way you can work out the level of cover you’ll need is thinking about DIME: Debt, income, mortgage and education.

  • Debt. Your family could well have to deal with any debts you leave behind, such as credit card bills.
  • Income. As a general rule you should try to shoot for 10 times your annual income when working out the level of cover you need, as well as factoring in any debts or education costs. The goal is to supplement what you would have contributed to your family’s finances for that length of time.
  • Mortgage. Much like with debts, you should take into account how much you have to pay on your mortgage.
  • Education. Maybe you want to help pay for your child’s school bills or you want to cover any future university fees. Upping your coverage can help pay for these costs should you no longer be around.

Other factors to consider

  • Funeral expenses. While not nice to think about, you will want to offer your family some financial help with your funeral, with the average one costing thousands of pounds. A standard insurance policy can help in the weeks and months after, or you could take out a pre-paid funeral plan.
  • Inflation. Your agreed pay-out may seem sufficient now, but what about in 30 years? While difficult, you’ll need to factor in inflation when buying a policy.
  • Writing in trust. Writing your life insurance in trust can help you hand money to your loved ones without it being charged inheritance tax. Speak with your insurer and potentially a financial adviser to see if it’s worth doing.

How do I compare life insurance companies?

  • Policies on offer. Initially you can filter out any companies that don’t offer the type of policy you want.
  • Coverage options. Working out how big of a pay-out you want from an insurer can help whittle down the options too. Not all providers will cover you for £200,000 for instance.
  • Cost of premiums. Only pay for what you can afford. Taking out a life insurance policy that you’re going to struggle to pay might lead to a situation where you can’t pay one month, and the insurance lapses.
  • Expert ratings. Look to sites like Defaqto to get a rough idea of the quality of a policy and its provider.
  • Customer reviews. While not a fool-proof method, taking a look at customer ratings can indicate whether an insurer is worth your time and money.
  • Customer service availability. Buying life insurance or filing a claim can be a long and tricky process, so finding an insurer with a helpful customer service team can be incredibly useful.
  • Claims process. You will want to avoid any insurer that makes the claims process difficult for your family. It will be a hard enough time as it is. Find out what your potential insurer’s claims process is and note down what details will be needed, and who will be required to file the claim.

What affects my life insurance premiums?

Each insurance company has its own methods for calculating premiums, yet these are the general factors they will look at:

  • How old you are. Your age is potentially the biggest risk factor insurers look at. The younger you are the lower your insurance costs will be.
  • Health. Insurers will take into account your height, weight, blood pressure and any pre-existing medical conditions you have when working out your premiums.
  • Family medical history. Serious health conditions and diseases that your immediate family have suffered from will be look at. Cancer, heart disease and stroke are a few of the conditions that could impact your premiums.
  • Smoking. Even if you’re a casual smoker this will bump up your premiums. Consider quitting and after 12 months you could get a better deal.
  • Substance abuse. If you’ve struggled with alcohol or illegal substances in the past, this can affect your life insurance costs.
  • High-risk jobs and hobbies. Maybe you have a penchant for skydiving? Or you’re a construction worker? Certain jobs and pastimes will earn you higher premiums.

Bottom line

To get the ideal policy for you and your family, sit down and really analyse your finances. Remember to think about your debt, income, mortgage and potential education costs (DIME).

Speak with your partner too and really research companies you like the look of. Shopping around and comparing life insurance providers will help you find a policy you need, at a price you like.

Frequently asked questions

The offers compared on this page are chosen from a range of products we can track; we don't cover every product on the market...yet. Unless we've indicated otherwise, products are shown in no particular order or ranking. The terms "best", "top", "cheap" (and variations), aren't product ratings, although we always explain what's great about a product when we highlight it; this is subject to our terms of use. When making a big financial decision, it's wise to consider getting independent financial advice, and always consider your own financial circumstances when comparing products so you get what's right for you.

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