What do I need to consider when selecting a Life Insurance policy?

Firstly, decide how much cover you need.

To make this calculation you need to see how much money you would need to pay off all your debts, then add to that the amount that your dependents would need to continue the same lifestyle. You also need to consider the effect of inflation, usually about 2% a year. Make sure you include any lump sums that will be provided by any other insurance, pensions or investments you have to offset the life insurance.

As a general guide, we recommend insuring your life for between 5 and 10 times your current annual net income.

If you are buying Mortgage life insurance then all you need to do is get cover for the value currently outstanding on your mortgage.

If you are buying Family Income Insurance then just work out how much monthly income your family will need to continue their lifestyle.

Once you know how much cover you need, then you must decide how long you want the insurance to last (the policy's 'Term').

For Mortgage Protection it’s easy - the policy needs to be the same as the years outstanding on your mortgage.

In other circumstances, the Term of the life insurance policy is entirely up to you. 5 years is usually considered to be the minimum term, and most people select a Term of 10 - 25 years.

The last important decision is whether you want the value of your policy (the 'sum insured') to move in line with inflation. This is called ‘indexation'. Most insurance companies refer to the Government's Retail Price Index and increase your sum insured by the same amount, so as the retail price index increases your monthly premiums will rise too.