10:04 03 June 2013
Life insurance is one of those things people forget about once they've bought it. You feel at ease knowing you've taken responsibility for looking after your loved ones after you've gone, and it will give your family peace of mind.
It's also the one time you hope you won't be making a claim - or at least not for years! But even if you already have life cover, you need to review it occasionally as your situation and your commitments change.
Here are 10 times you need to stop and think about whether you have enough insurance to look after your dependents.
1. Buying a house
Your mortgage will be the biggest debt you ever take on. You need to be sure it will be paid off should you die early, especially if you're the main breadwinner. The last thing your partner needs at a tragic time is to worry about keeping up the payments or having to sell up and move.
Banks and other mortgage lenders often try to sell you life insurance when you start on the property ladder, but you should always compare prices before going ahead as there could be better and cheaper cover elsewhere.
2. Getting married
Once all the fun of the wedding is over, you need to think about your new responsibilities. How would you partner cope alone with all the financial commitments you've taken on if they can't rely on your salary too?
Couples often take out life insurance jointly, buying one policy between the two of them. But advisers often suggest they might be better off buying two single life insurance policies.
The reason is that a joint policy only pays out once - typically on the first death, leaving the bereaved survivor without any cover. Since they are likely to be older by then, it will cost more to buy a new policy at this stage. Even if the joint policy pays out on the second death you have the problem that you'll have no help with bills when the first person dies.
Two single policies are not double the price of a joint one. In fact, they are often similar in price to a joint policy.
3. Having your first child
The cost of raising a child to the age of 21 has shot up to £222,458, according to insurer LV= in its annual cradle-to-college report. This is a rise of 58% in a decade. Education, especially if this involves university, is one of the main reasons it is so high.
If you haven't already bought life cover, it's vital to buy it once you start a family. And if you have only insured for a small amount, you definitely need to review it now.Food, clothing, child care, schooling and even holidays all cost more once you have a little one.
4. Adding to your family
A second, third or more children all put a strain on your household budget. You've probably already noticed how much more salary you need to keep the family going.
You may need a bigger house, a larger car, and each child needs to be fed, clothed and educated. All of it costs money. Not counting the university years, the most expensive time of a child's life is from the age of one to five. Is your life cover enough to pay for their needs should the worst happen and you are no longer there to provide for them.
5. Moving home
A larger home is likely to mean a bigger mortgage. Make sure your life insurance is enough to pay it off and, if you've increased the length of your home loan, that it runs for long enough.
The most popular policy is term insurance, which lasts for a preset period of time - typically the time it take to pay off your mortgage - and provides cover for the size of your mortgage.
There are different variations. Level term means the amount paid out remains the same throughout. Decreasing term is designed to pay a smaller amount as the years go by and your mortgage is gradually repaid. Increasing term means the amount you are covered for rises roughly in line with inflation.
6. Inheritance planning
Life insurance isn't just about paying off large debts such as your mortgage should you die. It's also about providing for your family's day-to-day bills once you are no longer bringing in a salary.
When you buy a policy, or review it, ask the insurance company to write your policy 'in trust'. By putting it into a trust, whoever you are leaving it to will receive it quickly as it avoids going into your estate and won't have to wait until probate is granted before being paid out. It also removes it from your estate for the purposes of inheritance tax (IHT).
IHT is charged at 40% on any assets - including your home - which exceeds the limit, currently £325,000. The exception is those you leave to your husband, wife or civil partner - these are exempt from IHT.
7. Moving job
Many employers offer a perk known as 'death in service' benefit. This provides a lump sum to your named beneficiaries should you die while working for the firm. The amount is typically set at four times your annual salary.
If you move job, check the terms of your new employment. If you no longer have this benefit, you could need to increase the amount of life cover you have.
Once you stop working you are likely to no longer have children relying on you, and your mortgage may well be paid off. You will no longer have any life cover you may have had as a benefit of your job.
But, depending on your pension, it may mean that once you die your pension stops or at the very least your widow or widower will receive a smaller amount. If you're worried they won't have enough to live on without your pension you could continue your life insurance.
9. Getting healthier
Life insurers look at a number of factors when deciding how much to charge you for your cover. Your age, general health and occupation will all be taken into account.
Smokers always pay more than non-smokers. If you give up smoking, tell your insurer. Your premiums may come down. If not, you can look around for another insurer to see if it will be cheaper.
You must have given up smoking for at least 12 months before it counts and you can't still be using nicotine replacement products such as inhalers, patches or chewing gum.
10. Dangerous activities
When taking out life insurance, or reviewing it, your insurer will ask you a number of questions about your lifestyle. Those who take part in dangerous sports and hobbies such as flying, climbing, scuba diving and parachuting, will be considered a higher risk than normal and will no doubt have to pay a higher premium. Alternatively, your cover will exclude death as a result of one of these activities.
Even if you aren't asked directly about this, you should tell your insurer because, if the company didn't know and you die as a result, the claim is unlikely to be paid. You should also tell your insurer if you've taken up one of these activities since buying life cover.
Whenever you are in the market for life insurance, make sure you shop around to get the best possible price on the policy that matches your needs.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
Disclaimer: Supanet is not responsible for, and disclaims any and all liability for the content of comments written by contributors to this website