Q: FIVE years ago I took out life insurance to protect my family’s finances in the event of my death. However, my circumstances have changed and I’m wondering if I should amend it – I now have three children and the level of cover is probably below what my family would need. What are my options?
LN, Glasgow
AThe first thing you should do is check whether there are any options within your existing contract which allow you to increase the amount of life cover you have, without having to provide evidence of your health. This is important if your health has deteriorated since the plan was initially taken out.
If you are in good health you should be accepted for a new policy with an insurance company to give you the correct level of cover. You have the option of either taking out a top-up plan for the additional cover or replacing the original contract.
It may even cost less. In recent years, life insurance rates have fallen due to increased competition and longevity, so even though you are five years older, you could find that replacing your existing cover is cheaper than keeping it in place.
There are two different premium structures to life insurance contracts.
Guaranteed premiums, as the name suggests, guarantee that the regular premiums will never increase once the plan is in force. Reviewable premiums may initially be set at a lower level but are not guaranteed. They can rise in the future but it depends on the insurer’s claims experience.
You will also need to decide how long you will need the policy for and what additional benefits you would like to include.
For an additional monthly premium you can choose to include waiver of contribution, so if you are unable to pay the premiums due to long term sickness, the premiums will be waived and the cover will remain in force.
You can also add critical illness cover so the benefits are paid out if you suffer a critical illness such as heart attack, a stroke, or you are diagnosed with cancer.
It is also important to consider what benefits, if any, your employer offers (if you have one). Generally, the larger the employer, the more attractive an employee benefits package is.
It is not uncommon for employers to offer up to four times your salary as a tax-free lump sum if you were to die while still employed.
Once you have decided what level of cover and what features you want to include, take time to shop around to find the one that is best value for money. Taking out a life insurance policy should be a fairly painless and simple process.
You can do this by contacting insurance companies direct, using price comparison websites, but you may find this to be time-consuming and frustrating.
Alternatively, you can ask an independent financial adviser (IFA) to complete this for you and they will shop around on your behalf to find the most competitive premium for your chosen level of cover.
The premiums should be no more expensive and in many cases cheaper than purchasing via price comparison websites.
Finally, if you are replacing existing cover, make sure that your new policy has been accepted and is in force before cancelling the old one.
• Jason Hemmings is a partner at Cornerstone Asset Management.
• If you have a question you need answered, write to Jeff Salway c/o The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: scotsmancash@yahoo.co.uk. The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd, Cornerstone Asset Management LLP and HBJ Gateley accept no liability on the basis of this article.