Life insurance is a complex matter, but let us attempt to answer some of the questions our clients generally ask, before they buy.
There are several very good reasons to cover your life through a life insurance policy.
You can take out life insurance just to pay off your mortgage, or to provide for your family, or both.
While factors such as age and previous or existing medical conditions may increase the cost of your insurance, we can check out the ‘small print’ and shop around to get the best deal for you.
If you are young and healthy, now is the best time to buy life insurance. Did you know that £100,000 of life insurance cover for a male non-smoker in his 20s can be as cheap as £5 per month?
The cost of life insurance in general has been falling in recent years. If you are paying a life insurance policy bought 10 years ago, for example, you could well get a cheaper quote, for the same cover, by shopping around for a new deal today – even though you are 10 years older! With our wealth of experience and contacts, we can help!
If you are a couple, you may be wondering whether to take out a joint policy or two single policies. Our advice would be to consider single policies. With two single policies, you get twice the cover for just a few pounds more, and have the comfort of knowing that the second spouse is still covered, after the death of the first.
Incidentally, did you know that your life cover may not be paid directly and fully to your spouse and family, unless you have specific measures in place? Some of your cover could be eaten up by Inheritance Tax at 40%! We can advise you on minimising such risks through the simple process of setting up your life insurance ‘in trust’. This takes your life insurance cover out of reach of the taxman, and reduces the value of your wealth, for tax purposes, at the same time.
No matter what your situation and your needs, your life cover will be cheaper and more suitable when recommended by an independent adviser. Why not speak to one of our friendly advisers, using the links on this page, right now!
Life Insurance: the Background
Life insurance is an insurance policy that pays out a lump sum of money when you die.
As such, it is a form of insurance designed to benefit others, who are known as the ‘beneficiaries’ of the insurance.
Life insurance has two principal uses. First, life cover can pay off your mortgage, thus clearing your debt and relieving your family of a major financial burden. Second, you can take out a life policy for the direct benefit of your spouse and family, or other dependents, to ensure their financial wellbeing after your death.
Life insurance is taken on the basis of a monthly payment known as the ‘premium’. This will be higher or lower, depending on the agreed amount of cover you want. It is important to calculate how much life cover you need, so that you are not paying out too much for your premiums (which is known as being ‘over-insured’), and not covered for less than you need (which is known as being ‘under-insured’). These calculations are important, and when making them, it is wise to enlist the assistance of your financial adviser.
Types of Life cover
The two main types of life insurance are term insurance, and whole-of-life insurance.
Term insurance is a policy which covers you for an agreed period of time only. You might take a term insurance to cover your mortgage, for example, with the policy timed to run until your mortgage is paid off. The policy then expires, which means that if you live beyond the end of the term, the policy never has to pay out. Term insurance can cover you and your spouse as a couple, paying out if either of you should die during the agreed term.
Whole-of-life insurance covers you until you die, no matter how long that may be. Due to the certainty that the policy will some day pay out, it is more expensive than term insurance.
Taking Life Insurance as a couple
Life insurance can be taken as a couple under a joint insurance policy. However, it is worth considering taking out two single policies, rather than a joint policy. That way, you can have double the amount of cover for just a little extra cost. Furthermore, if one partner dies, the surviving partner is not left without cover.
Applying for Life Insurance: avoiding Non-disclosure
As with every type of insurance, there are detailed questions about your health and lifestyle in the application form for life cover. It is essential to be honest and accurate when answering these.
Questions may also be included about the health history of your parents, as this could give clues relating to hereditary health issues. If your parents are no longer alive, these details should be checked with your family GP. Applicants are often unaware of certain ailments suffered by their parents, for the simple reason that these were not discussed in the home. In your application, you could quite innocently fail to disclose details of a heart condition recorded in your father’s health records, for instance. Providing inaccurate information, even inadvertently, is known as non-disclosure, and could potentially jeopardise your claim. The insurance company might maintain that, had it known the full details, your premiums would have been higher.
Life insurance ‘in trust’: avoid Inheritance Tax
When taking out life insurance, it is wise to ask your financial adviser about setting your policy up ‘in trust’. This is a simple matter of filling out a form, but has crucial advantages with regard to avoiding inheritance tax on your insurance payout. If your policy is not ‘in trust’, inheritance tax could eat up 40% of your family’s payout. An ‘in trust’ arrangement will also help ensure a speedy payout by the insurance company.
Life insurance: Questions to ask
Your financial adviser can guide you through all the issues to be considered when looking around for a suitable life insurance policy. Here are some of the key aspects he will consider.
It is useful to check that your life insurance premiums are guaranteed, rather than reviewable. Guaranteed premiums are fixed, whereas reviewable premiums can be increased during the course of your policy.
Life policies can include ‘waiver benefit’ which might typically keep your payments going in the event that future illness stops you working for more than six months, for example.
Many life policies include ‘Terminal Illness Benefit’, which pays out if you are diagnosed as having 12 months or less to live. This facility would usually pay out an agreed compromise figure, rather than the full cover figure.
Policies that include ‘guaranteed insurability options’ allow you the flexibility to raise the amount of cover, as your circumstances change. For example, you might wish to have more cover as your family grows.
At Principle First, our insurance experts are independent and can look at all policies on the market, to locate the policy that is right for you.
