How To Navigate The Life Insurance Minefield

Buying insurance of any kind is often confusing. In order to compare policies by price, you have to be sure that each policy carries the same benefits for the same amount, and figure in a dozen different factors. It's enough to set your head spinning in most cases.

Term life insurance cover, however, can be relatively easy to comparison shop. It simply covers you in the event that you die before the end of the term for which you are covered. Here's how it works.

How Term Life Insurance Works

Term life insurance will pay out a specified lump sum to the person that you name in the event that you die before the date the policy expires. The payout is subject to a few exclusions, most often suicide or other self-inflicted conditions.

Other than deciding if you want guaranteed or reviewable premiums, there's no need to worry about other bells and whistles (will it pay if my electricity goes out and my meat spoils?), so comparing policies is a simple matter of comparing premiums among the various life insurance providers.

How Much Cover Do You Need?

The biggest decision you'll face is how much life cover you need. The general rule of thumb is that, at a bare minimum, you should provide at least enough to pay off your outstanding debts and cover your funeral expenses. Thus, the face value of your policy should cover any remainder on your mortgage and other debts, and provide a cushion to help your family to get back on their feet financially after your death. If you have young children, you should also cover your expected annual salary multiplied by the number of years until the youngest is no longer financial dependant.

What Factors Are Considered in Assigning a Premium?

There are a number of factors that may affect how much you pay for your policy aside from the amount of the death benefit you choose. These include your age, your gender, the state of your health and any pre-existing conditions, and whether or not you smoke. Smokers can expect to pay at least 25% more in higher premiums than those who don't smoke cigarettes.

Why Should You Buy Life Insurance?

If you are the major breadwinner or a major contributor to family income, you should be insured. No one likes to imagine what will happen if they die, but sound financial planning demands it. Your life insurance benefit can mean the difference between your family keeping the home in which you live and losing it to debt if you are no longer able to provide for them. In general, if you are carrying a mortgage, you should carry at least enough insurance to cover the remaining mortgage so that your heirs aren't left with an ongoing financial burden.

Is Life Insurance Enough?

Frankly, it may not be. It's far less likely these days that the family breadwinner will die - but there are many other things that can happen to threaten family security. You may want to consider some other cover options for protecting your family's finances if you fall ill or have an accident that prevents you from working. These include critical illness insurance, which can help pay for care as well as income for the family if the main breadwinner becomes disabled with one of the named conditions. There are policies that combine life insurance with critical illness cover althouth the cost of CIC is much higher than standard life cover because the risk is greater.

5 Tips To Help You Save Money on Life Insurance

1. Shop around for the best deal.
2. Only buy what you need.
3. Get the most appropriate cover for a mortgage.
4. Give up smoking. You'll save at least 25%.
5. Write your policy in trust so that your beneficiary has immediate use of the benefit.