Life Insurance: Consumer Test By Sheila Challiner At Isnare.com Ezine Articles

It was revealed this month that the cost of life insurance has dropped dramatically in recent years. How do you know what kind of policy is best for you?

Term policies are the cheapest and simplest type of life insurance - you pay a premium every month for an agreed amount of insurance cover for a fixed term i.e. the number of years that the policy will run for. If you die, it then pays out a lump sum. If the policy reaches the end of its term and you are still alive, no money is paid out. There are several types of term insurance: "level" term where the payout is a fixed amount; "decreasing" term, which is often slightly cheaper because the sum to be paid out decreases year on year. In most cases this type of insurance is taken out to cover a mortgage. There is also “increasing” term insurance, where the amount payable increases slightly during the course of the term; this can be a good way of protecting your cover against inflation.

Joint life cover pays is useful for couples who require both of their incomes to pay the mortgage because a payout is made if either partner dies.

The most economical form may be pension term assurance.

Family income benefit offers the policyholder’s beneficiaries a regular income from the date of death until the end of the policy term rather than paying out one lump sum.

How much cover you need will depend on your own individual circumstances. Most large and medium-sized companies offer a death in service benefit which usually pays out three or four times you’re your annual income to your partner if you die whilst being employed. Hence if you are reasonably confident about remaining in employment, you may reach the conclusion that paying for additional life cover with a separate policy is unnecessary.

The cost of a life insurance policy depends on a number of factors, namely the length of the policy's term, the type of policy and certain medical criteria -whether you are obese or whether you smoke, for example. Insurers are clamping down on obesity in particular. As an indication, a fit 34-year-old man needing two hundred thousand pounds worth of cover over a 25 year term can get it for thirteen pounds and thirty six pence a month through Norwich Union. For a 44-year-old smoker, however, the premium increases to a minimum of £55 a month for exactly the same level of cover.

If you are paying more than this, you are of course, free to change at any time. It pays to shop around.

There are serious advantages to switching to a pension term assurance. If you already have a term insurance policy which pays out a lump sum, you can save a considerable amount on your premiums by changing to pension term. The reason for this is because under new pension laws announced in April, most people qualify for tax relief on the money they pay for life insurance if they opt for a pension term assurance (PTA) policy. PTA is basically the same as term insurance in so far as it is still protection-only. So it pays out if you die within the term but if you survive, no payout is given.

Not everyone stands to benefit from switching to PTA, however. For instance, if you purchased your standard policy a long time ago, the higher premiums that you may now have to pay owing to the increase in your age could well outweigh the benefit of tax relief. Similarly, if your health has worsened since you took out your policy, you will probably be better off keeping your term insurance.

Likewise, people who want a family income benefit policy (which provides regular payments) would not want to switch because PTA only provides a lump-sum payout

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