Life insurance offers protection to you loved ones in the event of your death. However, there are many things to research before taking out a policy.
This article will outline some frequently asked questions in regards to life insurance policies.
If you have dependents (i.e. children under the age of 18) then you would need to consider what would happen to them if you were to suddenly die. Life insurance can offer them a financial safety net, if the worst happens. Life insurance is also a consideration if you have a partner/spouse and you share debts and expenses (such as a shared mortgage). It can also be sought if you would like to pay for your own funeral, or you would like to pay your inheritance tax bill. You may also want to consider taking out life insurance even if you aren’t a breadwinner. The loss of a stay-at-home parent can mean that your childcare costs would still need to be covered, in the event of a parental death in the family.
If you like to find out about the many different types of Life Insurance available, take a look at our guide here.
Life insurance is sought in case there is a death, life assurance is a term used in Whole-of-Life policies as the there is a guarantee that the policy holder will die, it is ‘assured’, as it were. To find out more about Whole of Life Insurance, take a look at our guide.
Life insurance may still be applicable to you if you’re a single person with no dependents. You may have a mortgage, and you may be concerned about your family having to cover mortgage payments (at least for a short time) until a home sale is completed. Planning your funeral in advance and ensuring your will beneficiaries are not missing out on your inheritance, as a result of inheritance tax, may be another reason to seek cover.
Costs vary and depend on your age, health, the length of policy and the amount you wish to receive as a payout in the event of your death. Your occupation, hobbies, lifestyle, family medical history, height and weight will also be taken into account when you apply, in many cases.
You can find life insurance policies which factor-in rising living costs. This is known as ‘Increasing Term Insurance’. With these policies, the sum insured will rise in line with the Retail Prices Index, which is the measure of inflation. Those on this type of policy may see their insurance premiums gradually rise over time.
These can be added to some life insurance policies as an additional feature. They ensure that your premium payments are made if, for whatever reason, you can’t make a premium payment (in the case of a loss of a job, for example). In order to do this, you may need to pay around 3.5% of the total insurance premium, and it may not be applicable in all cases.
It is possible to take out multiple life insurance policies. Your circumstances may change, you may, for instance, extend your mortgage term, get a divorce, have more children and you would ideally want your cover to ensure that all of these things are protected. You may also like your existing policy and would, therefore, look for a different one to ‘top-up’ your cover. Life insurance typically gets more expensive as you get older. Therefore for this reason alone you may reconsider cancelling an existing life insurance policy.
Yes, you can get life insurance with a pre-existing medical condition. However, it may be more difficult to find a suitable policy and it may be more expensive. Some pre-existing medical conditions you may be able to cover with life insurance include, asthma, some cancers, diabetes, epilepsy, and heart disease.
The length of your life insurance cover is a personal decision based on your circumstances. If you are looking for term life cover, the policies are typically sold in increments of 10,15,20,25 or 30 years. You can also opt for Whole of Life Assurance which will cover you until your death.
In some instances, you may wish to seek out an additional life insurance product if your employer-paid life insurance, is not enough to cover your expenses. You may, for instance, require a joint policy that protects your spouse also. Further, you may lose your job in the future, in which case you will no longer be covered. It is also worth noting that the older you are, the more expensive taking out life insurance can be.
As is the case with some providers, you can amend your life insurance policy to suit your changing circumstances. Some insurers offer a ‘Guaranteed Insurability Option.’ This means that they can adapt your policy to suit, without you having to undergo a medical examination. Your premiums, on the other hand, are likely to increase with the changes made. You may also wish to adapt your cover to suit a higher mortgage loan, increase in pay, or the birth of a child.
There are a number of exceptions to a life insurance policy being paid out and each provider will have their own specific list of extenuating circumstances. Some insurers will not payout in the event of a death from drug or alcohol abuse. Further, if you’re a heavy smoker or you are very overweight, your insurer may reject your claim. Some may not approve payouts in the event of serious self-harm and suicide. Similarly, putting yourself in danger through risky hobbies (like parachuting or mountain climbing) may affect what you pay towards premiums, as well as increase your risk of a claim being rejected.
If you choose a Term Life Insurance policy and you do not die during the length of the term, your premiums will be lost. In essence, you are protecting yourself ‘just in case’ the worst happens with one of these policies.
To put your life insurance policy In Trust requires the help of a solicitor. Doing this should also help speed up the payout process as you may avoid probate. Policy funds are not counted as part of your estate for inheritance tax purposes when the policy is put In Trust. However, in some cases trusts are subject to inheritance tax. Please seek advice from a legal representative, as they can look at your individual circumstances.
For individual circumstances, it is best to speak to an expert. However, in some instances, there may not be an immediate need to write your life insurance policy in trust. This may be the case if;
Cancelling a life insurance policy is relatively easy, but you should consider the decision carefully as life insurance policies tend to get more expensive as you get older and you may want cover again in the future. In general terms, however, if you take up a policy and change your mind, you can contact the insurer within 30 days to cancel, usually with no charge. Although, you will need to check your policy fine print to see if this is the case with your insurer. If you would like to cancel after this time, you can write to or contact your insurer. In many cases, you can cancel with no charge. Alternatively, if your policy is becoming a little unaffordable, you can contact your provider to see if they will allow you to reduce your premiums for a lower level of cover. But please note, this may not be possible with all insurers. Please also note, not paying your life insurance premiums may result in the termination of the policy. Alternatively, you could look at ‘waiver of premiums’ as an additional extra, to protect the payments you are having difficulty paying. However, you will need to check if your circumstances (e.g. your occupation, particularly if it is deemed ‘risky’) will permit you to take this insurance add-on.
If you have a pre-existing medical condition, you may need to undertake a medical for life insurance. This is, of course, dependent on the insurer’s term. You will, however, be asked questions about your health, lifestyle, and medical history, as well as your family’s medical history. It is important to be truthful with these answers, as your premium calculation will be based on this information. Misleading the insurer with your information could result in a payout not being made, invalidating your policy. If you do have to undergo a medical, in many cases, you will be asked to attend an examination at a time that suits your schedule. Your blood pressure may be taken, as well as your weight and height and BMI. You may also be asked questions by the doctor/nurse and from this, further tests may be requested. In most cases, you will not need to pay for this assessment.
If you have further questions about life insurance because you are thinking about arranging some cover, get in touch with a life insurance advisor now. They can offer you a free, no-obligation quote.
I needed life insurance and critical illness for myself and my wife. I got a number of quotes from some of the big brands and was very happy with the final price. Mike Davidson, Birmingham
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* Life insurance from 20p per day is an illustrative figure only and may not be available to you. The figure is based off of a 25 year old non smoking female taking out £150,000 of term assurance over 25 years on a level term basis and available from Beagle Street. Figure accurate as of 19/03/2015.
* Life insurance & Critical Illness from 35p per day is an illustrative figure only and may not be available to you. The figure is based off of a 25 year old non smoking female taking out £150,000 of term assurance over 25 years on a level term basis along with £50,000 of critical illness cover and is available from Beagle Street. Figure accurate as of 19/08/2015.
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