There are numerous valid reasons why you want to take out life insurance and one of the main drivers behind your decision to arrange cover is to give yourself peace of mind that your family will be taken care of financially if something was to happen to you.

Arranging term insurance, for instance, would be the sort of thing many do when they take out a mortgage and want to have a backup plan in place that pays off the mortgage and other debts if you are no longer around to take care of that yourself.

Term life insurance plan

It is always a good idea to get some professional guidance when you are looking at the various life insurance plans available and there are a number of key questions you should ask before you sign on the dotted line.

How long do you need cover for?

It is important to understand the distinction between term insurance and a whole life policy as they are two different products.

With regard to term insurance, this is an insurance policy that lasts for a specific period of time.

The most obvious scenario where you might take out term insurance is when you take out a mortgage that lasts for 25 years, for example. You could then take out a policy that covers you for that specific period of time, paying out a lump sum to pay off the mortgage if you die while the mortgage is still being paid off monthly.

Try to align your insurance cover with the financial goals that you have for you and your family.

Are there any circumstances where a pay-out will be denied?

You should not automatically assume that the insurance policy will pay out if you pass away and there are often exclusions that you need to be aware of.

If you like taking part in a dangerous hobby that puts your life at risk, such as racing cars or skydiving, for instance, the insurance company might exclude over if your cause of death is due to a risky activity.

Always ask about exclusions and tell your insurer about your hobbies, as they could refuse to settle if this information is discovered when it’s too late.

Term insurance protection

What happens at the end of the term?

It is a good idea to ask what your options are at the end of the term of your insurance policy.

If you have taken out a 25-year plan your risk profile will probably have risen as you are older than you were, which could mean that you have a problem getting cover at affordable rates if you still need life protection.

Ask whether there is the option of a renewable or convertible term policy available if you think you will need coverage beyond the initial period.

What are the consequences of non-payment?

Your financial circumstances might take a turn for the worse and you could find yourself unable to pay the monthly premiums if something happened to you such as an illness or redundancy.

Ask whether they offer a period of grace to let you put your finances straight or if you will be able to reinstate the policy once your money situation becomes straighter again.

These are key points to consider and it would be wise to ask these questions before you arrange your cover and start paying your monthly premium.