12 Days of Christmas - Day 1, Life insurance

On the first day of Christmas

Cura gave to me

Life insurance for my family.

Life insurance is often misunderstood or overlooked, meaning there are many people who are going without the protection that they need. On the other hand, some people have protection insurance in place that doesn’t really suit their circumstances.

Life insurance is taken out to offer financial protection, as it pays out a cash lump sum in the event of your death. This money can then be used for a number of things, for example funeral costs, to pay off any debts or mortgages and to cover your family/dependants living expenses.

There are a few things which you should consider when trying to decide if you have a need for life insurance:

• Do you have any dependents that rely on you financially, such as children, siblings, parents or a spouse?
• Do you have any large debts, such as a mortgage?
• What sort of financial support do you offer your family already?
• If you were to die, could your debts be paid and your family supported financially without your input?

If you have any loved ones who rely on you financially, it is always worth considering taking out a life insurance policy, as it can offer some much appreciated security. The last thing any of us wants is for our family to have to struggle and potentially sell the family home, if they can’t repay the debt.

As well as people maybe not knowing the need for life insurance, many chose to not have it. A lot of people think that life insurance must be expensive, but in reality it can sometimes be found for just a few pounds a month. The price comes down to how much you need and your individual circumstances.

Another issue is the bad rep insurance gets from other areas of finance. Many of us have had some form of insurance that hadn’t paid out at one time or another, and it leads to a common misconception that life insurance may not always pay out. 

But Life Insurance Never Pays Out

This is a common thing that we hear in our industry, and we have definitely all seen stories in newspapers where a claim has not been made.

Claims for life insurance are much more likely to be paid out, with 97% of life insurance claims and 99.99% of whole of life claims paid in 2021, totaling over £4,378,000,000 (ABI, 2021). 

There are sadly sometimes where a life insurance policy hasn’t paid out, but this is usually down to premiums not being kept up to date, or a person hasn’t been truthful on their application. Insurers can sometimes pay out a claim or part of the policy amount, if someone has genuinely forgotten something in their medical history, or had not realised how bad their medical condition is. The times that insurers do not pay out at all is where people have deliberately hidden parts of their medical history.

Common misconceptions

• Life insurance isn’t needed if you’re young and healthy
• You can’t get life insurance if you have any health conditions
• Life insurance through your employer is enough
• You only need life insurance if you have a mortgage
• State benefits are enough to keep my family financially secure

I am young, this can wait

It could be that you are very healthy and young and you don’t actually need life insurance. Remember, life insurance is about leaving money to someone that is financially dependent on you. If you are single and have no children, it might be that you don’t have a huge need for it.

But taking out life insurance whilst you’re young and healthy can be beneficial in the long run. If you take out an insurance policy whilst in good health, you are likely to be offered standard rates of cover, which will be the basic premiums. You might choose to wait, but unfortunately, we don’t stay young forever. As you get older, the base premium for the policy will have increased, and if you have developed a health condition then this might increase the premiums more. 

Having a health condition certainly doesn’t mean life insurance is impossible, many health conditions can be covered by life insurance policies without there being any changes to the terms that you’re offered. Depending on the condition, it could be that the insurer will offer you life insurance at the normal premium amounts, or they may increase the premium of your policy.

I’m already covered through work

Having life insurance through your employer is great, and even better if you’re aware of any added benefits that may come with the policy. A life insurance policy through an employer will often cover you for two to four times your annual salary, which of course sounds brilliant, but would this be enough to cover your mortgage, funeral costs and provide financial support for any dependants? It’s quite common for people to take out their own personal life insurance policy, to top up the amount given by their employer’s policy.

The first things to think of are what your family might need if you were to die, based on their living expenses and how much it would cost to pay off any large debts. You should then look at how long you would like the policy to be, often you would take into account how many years it will be until your children are no longer financially dependent on you and how many years you may have remaining on a mortgage.

What life insurance is best?

There are different types of policies when it comes to life insurance. Term assurance is when there is a specific term for the policy, for example 20 or 25 years. This would usually be the length of your mortgage, the number of years until your dependents become financially independent, or however many years would take you to retirement age. 

There is also whole of life insurance which doesn’t have a specific term and will continue until a claim is made, it basically just keeps on going until you die or cancel the policy.

You might also want to consider Over 50s cover. This is a specific policy that you can get if you are over 50 years old and it carries on until you die or if you choose to cancel it. These policies do not go into any form of medical underwriting, so if you do have a health condition that is making getting insurance tricky, it won’t come up with these options. They do start off as accidental death policies for the first 1-2 years that the policy is in place, but there are some that can be as little a 6 months if you can answer no to certain health questions. 

Why should I use an adviser?

You can also opt for a non-advised or advised route. Many people may choose a non-advised route, which is using the likes of a price comparison website or applying directly on an insurers website. This option works well for some people and the key thing to be aware of, is that there is nobody there giving you advice whilst choosing your options. 

An advised route would be what our company does. One of our advisers will look at your circumstances and determine what cover you need, you will then work together to decide what options feel right to you and our adviser will find the right insurer for you.

Applying for life insurance can be quite straight-forward, and it could be that the insurers are happy with all of your answers on the application form and your application is accepted straight away. There are times where an insurer will have further questions or request a medical report or tests to be carried out. Although this may seem like quite a faff, it actually does sometimes work out better in the long run, as the insurer knows everything about your health from the start. This means that there shouldn’t be issues if your policy was ever claimed on.

Resources

ABI. (2021). Record amount paid out to help families cope with bereavement, ill health, and injury ABI. [online] Available at: https://www.abi.org.uk/news/news-articles/2021/05/record-amount-paid-out-to-help-families-cope-with-bereavement-ill-health-and-injury/ [Accessed 15 Nov. 2021].