Our Guide to Life Insurance & Critical Illness Insurance
Life insurance is an insurance policy that pays out a sum of money at the end of your life.
This sum of money is paid to one or more people, as dictated by you, who are termed the beneficiaries of the life policy.
Why should I consider buying life insurance?
Life insurance is particularly useful when you have dependents, such as a spouse and family, who are dependent on your income to live.
A life insurance policy can be put in place specifically to pay off your mortgage in the event of your death, thus relieving your family of a major financial burden that previously was paid for by your income.
Alternatively, a life insurance policy can be put in place to provide your family with a nest egg, or a lump sum for various general expenses when you die.
These products do not have to be separate; a single life policy can be set to pay out a sum greater than what is needed to pay off your mortgage, so that the remainder can be used by your family for other purposes.
The situation may be different for a single person with no dependents. Here, life cover to repay the mortgage may be all that is needed.
How do I buy life insurance?
Life insurance is bought on the basis of a form giving details about your age, health history and lifestyle, and the amount you would like the policy to pay out upon your death. This is known as the amount of life cover.
On the basis of the information you provide, the insurance company will quote you a price for the life  insurance, based on payments known as premiums.
Take care, when applying for life insurance!
It is important that the information you give on the application form is accurate and honest, particularly with regard to your health history and lifestyle.
Details regarding your previous and current medical history must be correct and reflect your doctor’s records, as must your declarations regarding smoker/non-smoker and your alcohol intake.
This is because the insurance company may calculate the price of your life insurance policy by accepting on trust the information you provide.
Alternatively, the insurer may request a doctor’s report on you from your GP before giving you a quotation, but at latest they will certainly do so before making a payout on the policy.
If these checks reveal that you held some detail back, it could be claimed that the price of your life insurance was cheaper than it should have been. The insurer could then be entitled to reduce or void altogether the payout on your life policy, leaving your family with nothing.
Life and Critical Illness Insurance
Many people take out life insurance cover and critical illness insurance at the same time. Critical illness insurance pays out in the event that you suffer a critical illness or medical event which you survive, but which prevents you from continuing to work.
In conjunction, life and critical illness insurances protect your family against your working life being cut short due to heart attack, stroke, cancer, bypass surgery, and a range of other illnesses, and in the event of your death.
Are there various forms of life insurance?
There are two main kinds of life insurance, and then several variations on those.
The two main kinds are term insurance/term assurance and whole of life insurance.
Term Insurance / Term Assurance
Term insurance / term assurance pays out if you die before the end of an agreed term, i.e. before a specifically named date. If you live beyond that agreed date, the policy ends and you are no longer insured.
Because of its specific end date, term insurance is very suitable for ensuring the repayment of your mortgage, if you die. The policy can be set to last as long as the mortgage, so that when you pay off your mortgage, the cover is no longer required, and the term insurance policy expires.
It is possible to take out term insurance as a couple, in which case the policy will pay out if either of you dies during the term.
Whole of life insurance
As its name suggests, whole of life insurance provides cover that lasts until you die, however long that may be.
Unlike term insurance, which may never have to pay out, whole of life insurance will definitely have to pay out to your dependents upon your death. That certainty is generally reflected in its higher price.
How much life insurance can I get?
Normally you can tell the insurance company how much cover you would like, and they will quote you a price for that amount of cover. However we also have a calculation to work out how much life cover you should have in place.
There are various steps you can take to ensure that your life cover is as cheap as possible. The primary ones are to give up smoking (after 12 months without smoking, you will be considered as a non-smoker for insurance purposes), and to lose weight if you are classed as overweight.
Questions to Ask, when buying Life Cover
Are the premiums on this policy guaranteed or reviewable?
A guaranteed premium stays the same. Reviewable premiums can be increased, and these are the premiums often featured in attractive-looking low-cost offers. The premium will be advertised at a low initial level, but may soon be raised substantially by the insurer.
Does this life policy have terminal illness benefit?
This pays out all or part of the life cover in advance, in the event of you being diagnosed as having 12 months or less to live.
Would two single life policies be better than one joint policy?
Taking a policy each if you are a couple can give you double the cover for just a little more per month, and the surviving partner is not left without life cover.
Should I write the policy ‘in trust’?
By writing your life policy in trust you avoid a potential 40% Inheritance Tax bill. Writing your life policy in trust is a small matter of simply filling out a form, when setting the policy up.
Does the life cover include guaranteed insurability options?
These enable you to extend the life cover as your needs change, for instance as your family or your mortgage grow.
Do I have any life cover already?
Check with your employer: you may be unaware of life cover bundled in with the other elements of your employee benefits scheme. Many companies offer group life insurance schemes with a ‘non-selection limit’, meaning that no medical details are needed. Such schemes are, therefore, an inexpensive option for those who may have had health problems in the past. These ‘death in service’ life cover schemes would pay out a lump sum, typically equivalent to 2 to 3 times the employee’s annual salary, in the event of his death.
About this Guide
This guide is intended as a basic introduction to Life Insurance and Critical Illness Insurance, and does not provide comprehensive details to this very complex area of personal finance, nor does the information presented here constitute financial advice.It is essential to consult a qualified expert, when planning for your insurance needs.
