Take a long, hard look at your life

Don't pay too much for a life policy - you may not even need it

When it comes to life cover, it seems we are more than a little confused about how much we need and even whether we really need it.

When it comes to life cover, it seems we are more than a little confused about how much we need and even whether we really need it.

Consider, first, these findings. Direct Life and Pensions, the internet-based life insurance provider, is basing its new advertising campaign around the fact that 2 million of us pay too much for life assurance. Online life assurance broker Life-Search has discovered that 60 per cent of homeowners take out life assurance with their mortgage provider despite the fact that they could halve their premiums if they shopped around and bought their cover from another provider.

There is also evidence that the majority of those with life cover are under-insured.

Deciding on the right level of life cover can be complicated. To begin with, not everyone needs it. There is no point in taking out life assurance unless you have dependants. Some people think they need it when they buy a house even if they don't have a partner or children, but this is not the case.

"Those who are taking out a mortgage but have no dependants need critical illness cover and not life cover," says Tom Baigrie, managing director of Life-Search. "You need life insurance to protect your dependants and cover your mortgage should you die."

There are various types of cover available. Very few people should take out "whole life" cover as this tends to be very expensive and is only worth having as part of your inheritance tax planning. Most people only need "term" cover. The type known as "level term" covers you for a lump sum with payments fixed for a certain amount of time. Such cover should incorporate the cost of your mortgage as well as the amount that your dependants would need to live off should anything happen to you.

"Decreasing term" matches the repayment due on a mortgage, and for this reason the amount of cover decreases with the mortgage. This version costs less than level term but doesn't provide the same amount of cover.

"Renewable term" policies are another option for those who can't afford level term cover. These policies are taken out for short periods and can be renewed. However, while the cost may be low initially, the charges will rise considerably as you get older and become a higher risk.

The other option is "family income benefit". This is appropriate for many families, according to Mr Baigrie, though many people know little about the cover. Its advantage over level term cover is that rather than paying a lump sum on someone's death, it pays out a regular tax-free income, a method that widows or widowers may find more useful.

In recent research from Legal & General, the Life Insurance Association (LIMRA) recommended that people should have life cover of 15 times their annual earnings.

Given that the average salary is £20,929, the average amount of life cover required is £313,785. However, Legal & General discovered that the average amount of life cover people have is just £93,000.

While calculating how much cover you need, you should also consider the length of term you require. Your cover needs to last for the term of your mortgage and until your children are no longer financially dependent on you, or until your pension provisions start to kick in. This is likely to be between 20 and 25 years.

If you already have a life assurance policy, it is worth checking whether or not you have got adequate cover. With premiums at an all-time low, you may be able to find a cheaper deal elsewhere.

"Many people don't seem to realise that there are no penalties for getting out of one life insurance policy and reinsuring with another, and now is the time to do so," advises Michael Ward, managing director of insurer Direct Life. "Premiums have come down by about 20 per cent over the past three years and the majority of people will be able to find a cheaper deal."

At the moment, Direct Life is running a "We Bet" offer for anyone who has taken out life insurance since 1 June 1996. The company believes that it will be able to offer all of these people a replacement policy at a lower premium. If it finds it cannot fulfil its pledge, it will pay their premiums for a year. It is also offering a £10 gift voucher with every policy of £125,000 and a £20 voucher to those who take out cover for £250,000 or more. Life-Search also has a price promise - it will match any quote if you find a cheaper one elsewhere.

Before you take out any cover, it is worth getting advice about the level and type of policy you need. Websites such as Life-Search and Direct Life (see Online Oracle, facing page) can ease the task of shopping around for the best deal but are only able to deal with an insurance application and don't offer advice online. Life-Search, however, offers free advice via its call centre.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence