How to Choose best life insurance

These are the very worst times of the year to buy life insurance – and they’re the most important. We’ve put together this useful guide to picking the right policy for you.

Buying life insurance in the weeks before you need it is a nightmare. But if you wait until the last minute, you’ll probably pay through the nose. So what is the best time to get a good life insurance quote, and what are the pitfalls to avoid?

The decision to buy life insurance tends to be a pretty personal one. The deadline you set is pretty hard and fast – if you apply for insurance the Friday before your birthday, you’ll get the policy, but if you apply the Monday before, it may be a case of working out which sibling has put the most cash in and fighting for their share.

In fact, the most you can rely on is that the amount you can apply for is limited. You can’t be greedy, or you’ll be passed over and find yourself starting your conversation with, ‘When was the last time you played bridge?'”

Everyone’s situation is different, but we spoke to three experts to find out what the optimum deadline for buying life insurance is.

Adam Young is managing director of LifeSearch, a no-frills life insurance agency. He says that for most people the ideal time to buy life insurance is January to April, which is the period before the period when they start looking at a mortgage.

“It’s hard to set a deadline because you never know what’s going to happen next in your life,” he says. “If you’re planning to get married or have children, you want to get it in place early in the year.”

If you already have life insurance, the ideal time to get a new policy is around September to December – about a year after the old one ends.

“The reason you need to get life insurance from the outset is that it will buy a second chance,” says Young. “By the time you get sick or die, the policies you’ve taken out are likely to be worthless. Your loved ones may not have enough cash to pay for the funeral, or even to get on the housing ladder.”

You also lose the peace of mind of knowing that a loved one will have enough money to pay your mortgage if you’re unable to work.

“There are all kinds of different policies out there,” Young says. “You could get individual policies, and buy a family policy – I have one myself – where I can access the cash for my family if anything happens to me. There are also whole family policies that cover the death of a member of the household, so your child’s children and your grandchildren are protected.”

Price is everything. If you pay more than 1% a year in premiums, Young says you’re probably getting a poor policy, because insurance companies can raise the rate you pay as soon as you need more protection.

“If you’re paying 2% a year, that’s a better deal, because it’s a guaranteed rise. But you’d be a fool to pay more than 1% a year for life insurance,” he says.

You might be surprised how much is covered by life insurance policies. Many people assume that every policy covers death. For example, most standard whole-life policies, which pay out for life, will pay out on death, but only the first £100,000 of life cover – after that the policy falls down.

A full universal life policy, which also pays out on death, is available on the High Street from the likes of Axa, Nordea, RSA and Zurich. Typically it covers £1m for life, after which it does not pay. This means that if you died aged 60 with a £1m-worth of life cover, your beneficiaries would receive £850,000 instead of the full £1m.

One of the best features of a life insurance policy is that it can pay out more if you don’t use it. This is called excess, and it’s paid out at the end of the policy. The value of this excess is likely to be around 3% to 4% of the policy, and it’s easily affordable on a £2,000 policy.

However, there are situations in which it’s not worth paying for a cover you don’t need. If you don’t expect to be working until you’re 70, for example, you’ll be on a higher income, and might have no need for the cover.

“Every policy is different, but it’s very unusual for life insurers to turn down a claim,” says Young.

If you think your insurer has fallen down on the job, there are a number of ways to fix it. You should always talk to a financial adviser, who will help you sort out the problem, but here are some steps to take.

Find out why they rejected the claim, and ask if you can appeal. If they won’t budge, you can try to appeal to the Financial Ombudsman.

If your insurance company doesn’t listen to you, check out your consumer rights with Which? Legal.

Unless your insurer has behaved badly, they must give you the following rights:

Your insurer must tell you how much you have paid for your policy, and how much they’ve paid out, when they make a policy and offer it to you, and they must tell you if you pay too much for it.

Unless your policy pays out on death, your insurer cannot stop you accessing the money. Your policy should also be free from charges.

You can use your policy for as long as you live. But if you try to sell the policy before you turn 70, your insurer has to agree to it, and their terms and conditions state that they must give you enough funds for the rest of your life.

If you have a policy that says that they won’t insure you if you commit certain acts while driving, such as speeding or drink driving, it’s a breach of contract.

Some insurers will charge you a premium if they think you could harm them in any way. This is called ‘derisking’. To avoid being charged this could mean not having your life insurance insurance policy insured.

Universal Life is one type of life insurance policy. It works by paying out on death, but the policy also pays out on a life, so there’s a risk that you could be penniless. It also pays less than a normal policy.

If you are still thinking about life insurance, you could consider the first-rate endowment life insurance policy, which pays a guaranteed sum to your beneficiary at the age of 55 – and only costs up to 5% more than standard whole-life insurance.