For many British households, life insurance can provide a great deal of financial security in cases where one spouse dies. But whether one is choosing a term or whole-life insurance policy as is the case in America, the key is for consumers to determine their life insurance needs.

With the market saturated with life insurance covers, there is no shortage of where to find a life insurance policy including online or even through an agent. The insurance industry in UK has experienced rocketing premiums in the recent past and with the ongoing global credit crunch, many households are increasingly finding it difficult to ignore cutting the cost of insurance.

In America, those over the age of 40 paid more in insurance premiums, a situation which has now changed with good rates offered to those in their 40s and 50s as long as they are in good health. This shows that insurers have come up with ways of estimating risk by considering family history and cholesterol levels.

Whole-life vs term policy

In America, a term policy will cover a total of 30 years, however, this offers no savings component and according to industry sources, after the insured has died, the beneficiary receives the face amount of policy. Additionally, there is no refund for those who haven’t died by the end of the term.

The whole-life policy, also known as permanent life insurance, offers protection from the day cover is purchased to when the insured dies. At the same time, it comes with an investment in bonds, money markets or stocks.

According to market reports, the policy builds cash value that the policyholder can borrow against. Traditional, universal and variable are the three most common types of whole-life insurance. For many people going through the credit crunch, whole life is considered to be costly mainly because some of the money is invested in a savings program which means it will attract high fees and commissions.

Top tips for life cover

Those paying more for their life insurance are advised to shop around for better deals and depending on whether one is single or married should determine how much they should spend on a life cover, however, those with children or whose spouses do not work should consider it a good time to take out life insurance.

According to market experts, a general rule of thumb for life insurance is five to 10 times your annual salary. Consumers are warned not to buy life insurance for young children because it ends up being wasted as no income is being replaced. It also helps if consumers can check their budgets before signing up for a life insurance premium because once cover is purchased, premiums have to be paid throughout the term, regardless of any changing financial fortunes, otherwise cover could be lost.

Policyholders are further advised not to allow a lapse of cover especially if they are planning to buy another one in future as this could signal financial instability. At the same time, those with income-earning spouses and children who are grown might be able to drop their life insurance.