Tips on Buying Your Life Insurance

As a general rule it is better to avoid products that combine insurance and investment. If what you need is a sensible amount of life cover, then simple term assurance is likely to offer best value. If you want to build up some capital for your dependants you could, for example, invest in funds held in a tax-efficient individual savings account (ISA) and take out a decreasing term assurance plan to provide a lump sum if you die early before your fund has had a chance to build up.

The premium you pay for your insurance will depend on your age, sex and state of health, among other factors. You have a duty to complete the proposal form honestly and accurately. If you are considerably overweight or you smoke, your premiums may be 'loaded' - in other words you pay more because there is a greater chance of an early death. Certain dangerous sports will also raise eyebrows in the underwriting department and in turn may raise your premiums. In some cases your policy may not cover you while you indulge in these activities.

The proposal form will also ask if you have ever been tested for HIV (AIDS). If you are a single man and want a substantial amount of cover, you will probably be requested to complete a 'lifestyle' questionnaire which is designed to discover whether your private life exposes you to a higher than average risk of AIDS or other sexual diseases.

The medical

Both men and women who want to take out a large amount of cover should expect to be asked to undergo a medical examination. Despite the aversion most people have to this, it does actually work in your favour. Where policies are not fully medically underwritten (this is usually the case with policies sold by direct mail or through off-the-page advertising), the underwriters assume there will be a much greater incidence of claims so the premiums may be much higher than a medically underwritten contract.

The premium will also depend on the company. Life assurance is a very competitive
market, which is why independent advice is essential. These days a good adviser will have access to a comprehensive database that will enable him or her to select the right features and the best rates available at any given time.

Your adviser should also make sure your premium rate is guaranteed. The cheapest rates are often offered by companies that reserve the right to 'review' premiums at any time. With reviewable premiums, effectively you are writing the insurance company a blank cheque.