Author: Lila Palla

Hey, I’m not into fashion designing. But could not resist a tantalizing title to talk about Insurance!! If you haven’t started a family, Insurance cover is the least of your priorities. But even though it’s not that cool to be insured, it sure is smart when there are people who depend on you.

Life insurance is a potent tool that not only offers the ability to plan for unforeseen events that can affect the family’s financial situation adversely but is also looked up to as an important tax-saving cum investment tool.

One needs to do a certain amount of spadework before purchasing a policy, to ensure the best possible coverage at the right price. Here are some helpful tips to get you started:

Explore

As premiums vary widely from company to company and cover to cover, it’s important to look around. One can try internet sites to get instant quotes.

Plot your value

The key to purchasing the right amount of life insurance is to have just enough coverage to meet your needs. If you have more life insurance than you need, you’ll be paying unnecessarily for higher premiums. On the other hand, it’s important not to have too little coverage, resulting in you being underinsured.

Health matters the most

Healthy people get better rates on life insurance. Higher premiums are quoted for anything that poses a risk for longer life expectancy (smoking, on regular medication, etc). The Sooner the better as premiums rise with increasing age, the younger you are when you purchase life insurance, the lower premiums you will be required to pay.

Review your cover periodically

Any life change indicates the need for an overall review of the financial plans. Make sure you have enough cover for all important events of life.

Focus on annual installments

You may not realize it, but you may be paying more for your life insurance if you pay your premium in monthly installments. Many insurance companies charge extra fees if you make monthly premium payments instead of paying the annual premium.

Never conceal facts

Though age and negative health-related conditions attract a higher premium, don’t think about lying on the insurance application. If your insurance company gets the knowledge of concealed facts they can terminate the cover.

Endowment policies have received bad press in recent years, due to many people’s policies not maturing at the value they may have been expecting. If you have an endowment policy but are unsure about how much it is actually worth, you may want to read on.

What is an Endowment Policy?

Endowment policies are usually used to pay off interest-only mortgages. There are two parts to the policy; the investment, and life cover. The policy lasts for a set amount of time.

If the policy dies during this time, the mortgage is automatically paid off. If the holder is still alive at the end of the ‘life’ of the policy, it should be worth an amount which is enough to pay off the mortgage; but this is not guaranteed, it depends on how the markets perform.

In recent years, some policyholders have found that their endowment is unlikely to reach the valuation that was predicted when they took out the policy. This leaves them unable to finish paying off the mortgage and can lead them to have to find other ways to pay off the mortgage. Consequentially Endowment Policies have not been as popular in recent years, with many lenders no longer offering them.

Pros

There is still a chance that your endowment will be worth enough at maturity to pay off your mortgage and some.

Cons

If the policy doesn’t perform as well as expected, it might not pay off the mortgage.

An Endowment policy will only repay the assured sum if you die, you may have cause to buy extra life cover to provide for other debts.

When the policy expires, so does your life insurance.

How do I know if my Endowment will pay off my mortgage?

Speak to your endowment provider. If it seems likely that your policy is unlikely to be worth enough to pay off your mortgage at maturity you should speak to an Independent Financial Advisor (IFA). You can find your local IFA at Yell.

For more information, you can contact the Financial Services Authority, who is in charge of dealing with complaints about endowment policies. It is also responsible for securing compensation for anyone who thinks they may have been wrongly sold an endowment mortgage.

There are private endowment buyers who are willing to purchase with-profit endowment policies of a certain type. This can recover some of the value of your endowment policy. Patient investors will buy up several small endowment policies and wait for them to mature, something you may be unable to do.