Being able to compare life insurance online can be a great labour saving method of getting your protection policies easily and cheaply.
However, we have identified a number of potential pitfalls that could lead to someone not having enough cover, the wrong term or even having a claim refused.
Going for the cheapest option isn’t always the right choice.
In many cases the cheapest life insurance quote may be ‘decreasing’ cover with ‘reviewable’ monthly payments.
This means the cover goes down over time and the payments could go up over time so it’s important to check the details and understand what you are being sold.
Most people like to be able to budget and ‘guaranteed’ monthly premiums will achieve this. The payments will stay the same throughout the term of the policy unless the cover is changed.
‘Decreasing’ cover is OK to protect a repayment mortgage which also goes down over time but it is completely the wrong option for an interest only mortgage.
‘Level’ cover would be required to protect an interest only mortgage correctly because the cover will stay the same and always be sufficient to repay the mortgage.
Level cover can be used to protect a repayment mortgage and this will generate a surplus of cover as the mortgage goes down giving additional benefit to the people left behind.
It is important to choose the right ‘term’ of cover. This is how long the policy lasts.
To protect a mortgage it makes sense to have insurance for the same length of time. Once the mortgage is paid the cover is no longer required to protect the family home. Life insurance that extends beyond the term of the mortgage is therefore a matter of personal choice.
With ‘Term Assurance’ (life insurance for a fixed length of time) the maximum term is usually 40 years up a maximum age of 85.
Some online comparison sites occasionally get confused and I have seen ‘Term Assurance’ offered beyond the age of 90. This is not available in the market and we have made the websites concerned aware of the misleading error.
For cover beyond the age of 85 ‘Whole of Life’ cover may be the solution.
This is more expensive than ‘Term Assurance’ because the insurance is until death (provided the monthly payments are made) and this means the insurance company will have to pay a claim eventually.
If you are not 100% sure you know what you need, be wary of websites that offer no advice and allow you to apply online or print your own application form. If something important is not declared it may make a claim invalid.
‘Non-disclosure’ is the main reason insurance companies refuse to pay a claim.
The general rule of thumb is ‘if you’re not sure if the insurance company needs to know, tell them anyway’.
Alternatively give the insurer a call or speak to an adviser.
Most mortgage advisers should be able to offer advice about life insurance.