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YourMoney reader's money worries: ‘Should we renew our life insurance policy?’

Paloma Kubiak
Written By:
Paloma Kubiak

A YourMoney.com reader asks if she should renew her life insurance cover after being approached by her mortgage broker offering to provide a quote. We speak to NFU Mutual to provide some pointers.

Dear YourMoney.com,

My husband and I last renewed our life insurance, including critical illness back in 2020. But I’ve been called by our mortgage/protection broker inviting us to review our policies and I’m not sure if we should do this. Can you help? Laura, from London.

Andrew Love, protection expert at NFU Mutual provides the following response to Laura:

Most people take out life insurance to cover a cost in the event of a death, for example replacing income, paying off a mortgage, or covering school fees.

Term assurance policies cover your death for a specific number of years. If you reach the end of that term it is important to review whether you need to take out another policy.

For example, if you have extended the length of your mortgage to deal with the cost of rising interest rates, you may require some form of protection for a longer period.

Even before your life insurance policy comes to an end, it can be important to review whether it still meets your needs, particularly if the costs you are covering have increased since you took out the policy.

If you’ve moved to a larger house and borrowed more money to do so, it is crucial to check your life insurance still covers the debt, and if it doesn’t, it could be worth increasing your cover.

A financial adviser can help ensure you have the correct life insurance cover to meet your needs.

You can either take out a brand new policy for the whole amount and cancel your existing one, or keep your existing policy and buy additional cover for the shortfall.

Taking out a new policy for the whole amount is usually more expensive than taking out additional cover as you will be older.

However, there can be occasions when a change in lifestyle could reduce the premium you’re paying, for example if you were overweight when you took out the original policy and are now much fitter, or if you previously engaged in a dangerous hobby like motorsport and no longer do so.

Even if you haven’t upsized your home or borrowed more money, it’s good practice to review whether your existing life insurance still meets your needs.

In some cases there may not be a problem. If life insurance is covering a fixed or decreasing figure such as a mortgage or a loan, then original cover may still be appropriate.

There are a variety of different life insurance policies available. They can be taken out on level basis where the sum assured stays the same. A decreasing basis reduces the sum assured during the policy and is most commonly used to cover a repayment mortgage.

Or you can take out a policy where the sum assured increases each year; some providers offer policies linked to inflation while others offer 5% increases each year. This may make it more expensive, but it reduces the risk of being underinsured and is for covering costs likely to increase over time such as school fees or university costs.

Things to consider:

  • What is the life insurance policy protecting? If it’s a repayment mortgage or loan then decreasing or level cover are likely to be appropriate.
  • If life insurance is protecting a cost that is likely to increase, such as replacing income or covering school fees and university costs, then increasing cover could be more appropriate
  • If you have recently moved home and borrowed more money or re-mortgaged for a longer term then check the cover you have in place still meets your needs.
  • If you already have an existing policy, consider buying more protection to ensure your needs are covered.