Statistics released by the Association of British Insurers in 2005 showed that less than 50% of British households have any life insurance at all. Of those who do own a life insurance policy, a similarly staggering number are either under or over insured.

It appears that once reason for this might be that more than a third of those with life insurance do not regularly review their policy to ensure that it continues meets their needs. Just being insured isn’t always enough and it’s important to ensure that your life cover correctly reflects your current lifestyle and family circumstances.

Have your family circumstances changed?

The type and/or amount of cover you need will change over the course of your life as family and lifestyle changes affect your insurance needs. Some of the most common life events that would warrant a review of your life insurance policy are…

• Getting married
• Having children
• Moving home
• Getting divorced
• Retiring

If you get married but plan to wait a few years before starting a family, term life insurance can be a good solution. Term life cover is less expensive than whole life insurance, and it’s even cheaper whilst you are young and healthy. Once children are on the way, it’s a good idea to review your cover with each additional child and to consider increasing your life insurance or perhaps extending the scope of the cover to include more comprehensive options such as critical illness insurance so that your family’s financial needs will be met if you or your partner dies, becomes seriously ill, or is permanently disabled.

Divorce or retirement may reduce or even eliminate your need for life insurance. If you divorce without having had children and have no other dependants, you’ll likely decide you no longer need life insurance at all. If children are involved, you may want to change your beneficiaries to include your children and exclude your former spouse. As you approach retirement, you may decide to include your adult children as beneficiaries, or reduce your total coverage.

Has your lifestyle changed?

The same principle applies when you make lifestyle changes. It’s prudent to review your life insurance if you…

• Start or stop smoking
• Change your level of fitness or health significantly (including blood pressure, weight or cholesterol levels)
• Start or quit a higher-risk job
• Take up or quit a risky hobby

Poor physical health, smoking, a high-risk job or past-time will increase the amount you pay for life insurance but it’s important to declare such changes to your insurer to prevent any claim being invalidated due to non-disclosure. The good news is that if you improve your health or make positive lifestyle changes you can reduce your insurance costs too. For example, if you quit smoking several years ago but you’ve still got the same insurance policy, you’re likely to be paying much more than you need to.

You may also find that a review of your life cover reveals significant savings if you’ve had life insurance for more than five years. Although you are five years older, premium rates on average have reduced over the last five to ten years meaning the same cover could cost less today.

Action steps

1. Digg out your life insurance policy and review the features, terms and conditions of your cover.
2. Decide what cover you need to meet your current financial needs and take advice if you are unsure.
3. If you don’t require advice, go online and compare the cost of your existing cover and any replacement. Consider using a discount life insurance broker.
4. If you do apply for a replacement policy ensure your existing policy stays in force until your new cover is on risk.
5. Don’t forget to cancel your old policy once any new cover has started.

How important is the cost of premiums when you’re shopping for the best life insurance policy? Cost is an important factor, but in some situations it’s better to choose a slightly more expensive option to ensure you’re getting the cover you need. This is particularly true when choosing between a joint life insurance policy for you and your partner, or opting for two separate policies.

Advantages and Disadvantages of Joint Life Cover

For a young couple with little money to spare for life insurance, a joint policy is an attractive option, as both partners can be insured for less than the cost of two separate policies. If one partner dies, the surviving partner will benefit from an insurance payout that can be used to pay the mortgage, additional debts, or simply provide some financial relief by making up for lost income. However, getting a cheap joint life policy does not come without additional costs.

The most significant disadvantage in the long term is that getting joint cover to save on insurance premium costs means that couple ends up with a policy that only pays out once. The surviving partner benefits from the insurance payout, but the policy has now terminated, and they are left uninsured. Depending on how much time elapses between the purchase of the policy and the payout, the surviving spouse may be in their forties or fifties, and be facing much higher premiums if they want to purchase a new insurance policy for themselves.

There are some other problems with joint life cover, too. These typically come into play when one partner earns significantly more than the other, or if one partner is much younger or is in better health than the other partner. Joint life cover insures each partner for the same amount of money, so in the first scenario, one party may not be adequately protected against the loss of income of their partner. In the second scenario, an older partner, or one who is in poorer health, can drive up the total premium costs significantly, to the extent that two separate policies will actually be less expensive.

One more problem with a joint life policy crops up only if the couple separates, so most people tend to overlook this issue. Joint life cover cannot be divided between two separating partners—it’s simply impossible. In these situations, often the only solution is to terminate the policy. This means that not only that any money paid has been essentially wasted, but also that the couple may find premium costs have risen in the meantime due to their age or other factors.

What’s the Best Solution?

In most cases, the most practical way of avoiding these issues is to simply purchase two separate policies. Two policies cost more than one, of course—but you’re getting twice the amount of cover for what usually amounts to just a few extra pounds per month. Both parties can be insured for amounts that will leave their surviving partner with adequate protection, and the premiums for each policy will be calculated independently, so an older partner’s higher rates will not affect the premium cost for the younger partner.

For most people, getting a mortgage is the most significant financial commitment they’ll make. Given this fact, it makes good sense to invest in some form of mortgage protection. Here are five options for protecting your biggest asset.

Mortgage Life Assurance

For most couples or families, a form of mortgage protection that pays the outstanding balance of a mortgage in full is the most desirable option. Choosing this type of mortgage protection ensures that your loved ones will be able to live in your family home and be more financially secure if you die. Mortgage Life Assurance is also known as Decreasing Term Insurance, and with this form of mortgage protection, the amount you are insured for (and the amount that can be claimed) decreases as the balance of your mortgage decreases.

Term Life Insurance

If you’re interested in a plan that offers full mortgage repayment in the event of your death, and perhaps leaves some money over for your family, Term Life Insurance might be your best option. This form of protection is similar to Mortgage Life Assurance, but in this case the amount you are insured for remains the same over the life of the policy.

Mortgage Payment Protection

Also known as Accident, Sickness and Unemployment (ASU) cover, this type of mortgage protection looks good on the surface, but it does have some significant flaws. In the event that an accident or illness prevents you from working, or if you lose your job, ASU cover will pay your mortgage and any other associated costs for up to one year. Note, however, that this type of cover is generic in that it does not take into account your occupation, gender or age, and you will not be covered for any pre-existing illnesses. One advantage of ASU is that you can purchase each type of cover separately—for example, you could purchase unemployment cover only, to supplement another form of mortgage protection that provides better illness and accident cover.

Income Protection

If you prefer a protection plan that offers more than the cost of your mortgage repayments, but prefer to avoid the expense of a plan that pays your mortgage in full, Income Protection may be a suitable option. If you are unable to work due to illness or accident, an Income Protection plan entitles you to a tax-free monthly payment until you are able to work. However, this form of protection does not include coverage if you lose your job. This is one situation where getting the unemployment cover from an ASU plan to supplement your income protection can be beneficial.

Buildings and Contents Insurance

Strictly speaking, this is not a form of mortgage protection; however Building and Contents insurance will protect your home and possessions from theft or loss due to damage or fire. When shopping for this type of insurance it’s crucial to pay attention to the fine print and determine exactly what you’re covered for. Most policies cover theft and fire or flood damage, but individual policies differ in some essential details.