COMMENT
An Ultra-Quick Guide To Life Insurance!

By Alison Hunt (TMFAlly)
July 21, 2005

OK, we promised you a quick and painless guide to taking out life insurance, and here it is!

1. What is Life Insurance

Essentially, it's a form of insurance you take out that agrees to pay a fixed amount to your beneficiaries should you die during the period the policy is in force. Well, that's as long as your monthly premiums are up to date!

2. Do you need Life Insurance?

Do you have dependents? By this I mean anyone who would suffer financially if anything were to happen to you children, partner, do you care for elderly parents? Would your spouse have difficulty paying the mortgage? If so, you should seriously consider taking out cover.

3. Which type of cover do you need?

There are many different types of cover but we will discuss two of the commonest here.

Level term assurance is the cheapest and simplest form of cover, as it will only pay out a fixed amount if you die within a fixed period. Your premiums will remain the same during the term of the policy, as will the payout, should you die.

Decreasing term assurance, on the other hand, means that you will pay the same monthly premiums, but the level of cover will decrease. This type of policy is can be taken out alongside a repayment mortgage (as the amount required to pay off the mortgage decreases, so does your insurance payout. You can find out about the other life insurance terms, here.

4. How much cover do you need?

Now here's a tricky question. Some insurance companies recommend between five and ten times your gross annual salary (so a man earning £25,000 should take out between £125,000 and £250,000 worth of cover). However, it all depends on your personal circumstances. Ensuring there will be enough money to pay off such things as the mortgage and any other loans could be a start, with some left over to replace at least some of your income.

5. How long do you need to be covered for?

Ideally, you should insure yourself until retirement age. If you have children, you should aim to be covered until they are financially independent.

Finally, don't forget:

• To check with your employer before taking out any cover, as you may already receive life insurance as part of your company benefits package. Many companies provide cover of three or four times your annual salary.
• To insure both partners if you have children! After all, could you afford to go out to work and pay for childcare?

OK, so that was pretty quick and painless, wasn't it? Take note of your answers to all of the above questions and start applying for quotations for life over. And if you'd like to make things really easy for yourself, check out the Fool's insurance broker partner, The Idol. You can apply for your first competitive quotation, right here!

Apply for a whole range of insurance quotations through Fool partner, The Idol, in our Insurance Centre.