When taking out life insurance, the most important thing to remember is that policies are based on your health at the time you sign them rather than any period thereafter. Unlike annual policies for things such as household contents and car insurance, life cover is long-term, according to the Association of British Insurers.
This means that as long as you are honest and fully disclose any existing conditions at the very beginning, premiums and cover levels should stay the same even as you age or if you fall ill.
The ABI, which represents insurance providers, also dispelled the myth that surrounds exclusions in insurance policies for life and other products. In no unclear terms, it stated: “The policy will set out what is insured and what the main exclusions are. If loss occurs from an event covered, then the insurer will pay out, in accordance with the policy terms and conditions.”
Again, the key is to provide “full and correct information” when applying for a policy, in which case, you can rest easy knowing that your life insurance provider will pay out at a time when your family are likely to need it most. There are two main types of cover; level term and decreasing term, and these are tied to a person’s mortgage, as policies are most usually taken out to cover against repayments on homeowner loans.
Level term cover is designed for those wishing to cover an interest-only mortgage, as the sum assured remains unchanged during the term of the policy. For decreasing term products, the sum assured falls over time as the mortgage is repaid, so that the less money you have outstanding on your home, the less money you will receive from your life insurance provider in the event that a payout is made. The major benefit of decreasing term products is that, although premiums remain constant during the course of the policy, they tend to be much lower than those for level-term policies. If you are taking out life insurance, you should also consider whether you want critical illness cover to protect against the risk of running up huge debts if you are left unable to work because of illness.
