Life insurance - your questions answered

Life insurance is a hugely important financial product for anyone with dependants, so it pays to understand what you're buying. To help you get precisely what you need, here are the answers to the most common questions asked by MoneySuperMarket customers to our advice team.

How much life insurance should I get?

This depends on your circumstances, especially your household income. It's this amount you need to replace over the years ahead, and you need to have enough to clear any debts, such as your mortgage.
Some experts suggest having 10 times your annual household income as the 'sum insured' on a 'term' insurance policy. This is the amount the policy will pay out if you die during the term - see below. But there's a balance to be struck: the higher the sum insured, the larger your premium will be.

Who in the family needs cover?

It's not just a question of insuring the breadwinner's income (or both incomes, if two of you are working). If you or your partner stays at home to look after the house and children, you need to factor in how much it would cost to pay someone to do this work if you weren't around and add this amount - on a recurring annual basis - to you sum insured.
This will allow the breadwinner to continue working. Of course, following a bereavement, you may decide to change your routines, but having financial provision will at least give you breathing space to decide what you want or need to do.

How long should I take a policy out for?

To cover your family, choose a policy 'term' (the length of time the policy lasts) that coincides with your youngest child reaching 25. At around this age they should be financially independent and your need for cover should cease or reduce.
To cover your mortgage, make sure you choose a policy term that matches the time remaining on your mortgage.

Can l cancel my policy?

Yes. Your circumstances might change, meaning you no longer require cover or require a different type. Once you stop making payments, your cover will cease and you will no longer be insured. You won't get any kind of refund or rebate if you cancel.

How can I ensure the money goes to my children?

You need to write your policy 'into trust'. This will ensure that, if you die, the money will end up in the right hands.  A trust is a legal arrangement where one or more 'trustees' are made legally responsible for holding assets. The assets are placed 'in trust' for the benefit of one or more 'beneficiaries' and managed by the trustees.

Do l have to cover my full mortgage amount with life assurance?

There is no legal requirement to do this. However, if you don't you are potentially leaving a shortfall which would still need to be paid off.

How long will it take for my policy take to be accepted?

This can depend on a number of factors such as your lifestyle, health and family history.  
If you have had health issues in the last five years such as raised blood pressure, there could be a delay of up to 6 - 8 weeks because the insurer will write to your GP surgery for details.

Will I get my money back at the end of the term?

Term assurance policies have no monetary value beyond the promise to pay a valid claim. Once the policy comes to an end, you will not get anything back.

What about critical illness cover?

Critical illness cover pays out if you contract a serious illness such as advanced cancer, severe heart attack, serious stroke or multiple sclerosis. This type of cover is four times more likely to pay out than ordinary life cover and is well worth considering. You can buy a combined critical illness and life insurance policy from the same insurer.