When it comes to life insurance, there are a lot of things to consider. The first and foremost thing to bear in mind is that there is no one-size-fits-all policy. Many factors go into calculating what policy best fits your specific set of needs. From your familial situation to the status of your health and your finances, there are important questions around these topics that need answers if you want to make sure you are getting the best life insurance policy for your specific situation.
In this blog post, we will discuss some of the most important factors that go into choosing a life insurance policy, as well as provide some tips on how to find the right one for you. In addition to reading this blog, why not pop over to our new Life Insurance Quotation Calculator and get a quote today.
Firstly, let's cover some of the basics about life insurance.
Types of Policies
A life insurance policy is a contract between you and an insurance company. You pay premiums (either monthly or yearly) and in return, the insurance company agrees to payout a sum of tax-free money to your beneficiaries (usually your spouse or children) in the event of your death. The amount of money that is paid out is called the death benefit. Note, while the payout itself is tax-free, the recipient of a life insurance payout may be liable to pay inheritance tax, depending on their relationship to the deceased.
There are three main types of life insurance: Term Life insurance, Mortgage Protection (Decreasing Term Assurance) and Whole of Life insurance. Term Life insurance is temporary and only covers you for a specific period of time (usually between 10 and 30 years). If you die during that term, the death benefit is paid out to your beneficiaries. If you don't die during that term, the policy expires and you (or your beneficiaries) get nothing.
Mortgage Protection insurance, sometimes called Decreasing Term Assurance, is used to cover a mortgage taken out on a property. However, many people now use Decreasing Term Assurance to increase the amount of insurance cover they have when their family is young. Because the amount that will be paid out is decreasing over time, it is cheaper than level term insurance. It also ensures you have most cover when your children are under 16 years.
Whole of Life insurance, on the other hand, covers you for your entire life. As long as you continue to pay the premiums, the death benefit will be paid out to your beneficiaries when you die. Whole of Life policies are usually taken out later in life to cover residual exposures like funeral expenses. As long as premiums continue to be paid, the policy will pay out on the passing of the first life. There are variations on this policy, so please consult with us here at Fitzgerald Flynn for further guidance.
The insurance plan you choose in the end should be dictated by your personal circumstances but it's important to bear in mind the pros and cons of each policy type when making your decision. Term Life plans are relatively cheap, but the policy expires once the term is over - given that there is no conversion option attached. Mortgage Protection/ Decreasing Term Assurance works out much cheaper. If a ‘conversion option’ is added ,the length of the policy can be increased. It would also be possible to ‘level’ the policy at that stage so that benefits won’t go below a certain amount. Conversion options relating to insurance policies can be quite complex, so be sure to talk to us at Fitzgerald Flynn for further guidance.
As you can see there is a whole litany of options at your disposal. Due to the extremely complicated nature of life insurance, it is advised that you always seek professional help when trying to decide which policy type is best for you.
Assessing your Situation
Now that we've covered the basics of life insurance, let's discuss some of the factors you need to consider when choosing a policy. The first and most crucial factor to consider is your family situation. Life insurance can be an important safety net for your loved ones, especially if you are the primary breadwinner in your family. It can give them financial security and peace of mind in the event of your death. If you have young children, life insurance can provide for their future needs like education and childcare. If you have elderly parents who rely on you financially, life insurance can help them cover things like living expenses and healthcare costs as they approach their later years. Taking your loved ones into consideration should be the first step in building your perfect insurance plan.
The next thing to consider is your financial situation. This includes things like your income, debts, and assets. A good starting point is to make a list of your current financial commitments. This could include things like your mortgage, car loan, credit card debt, student loans, etc. Once you have a clear picture of your financial situation at present, you can start to calculate what might be necessary for your financial future. Consider the years ahead and work out what financial curve-balls may be thrown your way. How much money would your loved ones need to cover debts and living expenses if you were no longer around? Do you have any outstanding loans or credit card debt that would need to be paid off? Would your family be able to maintain their current lifestyle if you died? Answering these questions can help you determine a solid financial timeline upon which to base your plan.
Your health is another important factor to consider when taking out life insurance. If you have any pre-existing medical conditions, you may be classified as a high-risk applicant and be required to pay higher premiums. Some insurers may even refuse to cover you altogether. It's important to disclose any and all health information when applying for life insurance so that the insurer can accurately assess your risk. Your line of employment may similarly serve as a distinguishing factor that insurers take into account when assessing your risk. If you have a dangerous job (like being a police officer or firefighter), you may be required to pay higher premiums. This is because there is a greater chance that you could die while working and the insurer wants to protect themselves from having to pay out the death benefit.
Other Factors to Consider
Protection for your family is the primary reason to take out life insurance, but a life insurance plan can also be tailored for practical, business-related purposes. For example, if you own a business and have a business partner, you can take out a life insurance policy on each other's lives. This way, if one of you dies, the death benefit can be used to buy out the other partner's share of the business. This can help maintain control of the business and prevent any financial difficulties that might arise from having to sell the business outright. Many business owners also utilise Pension Term Assurance policies. These types of policies can be very beneficial to business owners as they grant you the benefit of having life cover whilst also availing of tax relief on the premiums you pay.
One of the most common reasons people take out life insurance is to cover their mortgage. If you have a family, the last thing you want is for them to be saddled with your mortgage debt if you die. Mortgage Protection Insurance is a type of life insurance that pays off your mortgage in the event of your death. This can give your family the financial security of knowing that their home is taken care of if you're no longer around.
Another form of Insurance is Serious Illness Cover. We all inherit our family genes, and all the complexities that go with it. If you are unsure or need more information, please consult with us here at Fitzgerald Flynn. We would be delighted to talk you through any queries you have concerning Serious Illness Cover.
Life insurance is a vital part of financial planning, regardless of your age or stage in life. The earlier you start the better, as this can help you lock in a lower premium. But it's never too late to get started. If you have a family, a mortgage, or other financial obligations, life insurance can give you peace of mind knowing that all of this will be taken care of financially if something happens to you.
At FitzGerald Flynn, we understand how important it is to have the right life insurance policy in place. As previously mentioned, we have recently finished the construction of a new quotation tool on our website and we are extremely excited to share it with our prospective customers. Simply visit the calculator here and enter a few key pieces of information. With only a few clicks, you can find out how much cover you need and get a life insurance quote that suits your budget and needs. Give it a try today and see how we can help you secure your financial future. If you have any further questions, our team of expert advisors are always on hand to help.
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