Life Insurance

An interesting thing with life insurance is trying to establish who needs it and why and we often speak to people who have maybe come to us because they want to talk about life insurance, but they actually don’t need it and there maybe that we speak to some people who haven’t even thought about life insurance, don’t want it and they really really need it.

So from an advice point of view what it comes down to is what’s known as the insurable interest. What’s, who is going to be negatively effected financially if you were to pass away? Now that is often a partner or children and it’s often a lot of time, we will link it in with mortgages and I think it goes back to kind of like this social thing that we all do in in the society. I think where we think right, I’ve got a mortgage. I’m now a grown up. I need to get life insurance, which is fine. It’s brilliant for us to be starting to think about these things as and a mortgage really does often lead to a need for life insurance and it’s interesting that it kind of comes up at that point. But essentially it’s always about the financial elements of things.

So if you have a mortgage and you have a partner or you have children, then they could potentially inherit that debt and what we want to do is make sure there’s an insurance policy there to just pay off that debt get it away from them because obviously they may not be able to keep up the repayments, they might have to move home if they’re unable to do that and they’ll have the shock of your income not being there as well. So it’s going to be a lot going on.

We also have things like family protection that we do want to think of which again is we say Family Protection, but essentially it’s another life insurance policy and what we’d be doing there is maybe looking at providing a certain amount of income to your home in the event that something does happen to you. So we’ve got that insurable interest of again, somebody is going to be financially dependent upon us. They will be for certain period of time and we want to replace some of our income into the household just to make sure that they are okay, they can maintain their standard of living and they can continue to make ends meet at the very least.

We have other things as well in terms of insurable interest where we start going into things like inheritance tax planning or gift planning. And that can be incredibly important to make sure that family members don’t suddenly see quite a significant tax bill all of a sudden if we have been in the position to be able to give some wealth over to other people. But essentially drawing it all to its basic minimum life insurance is where somebody is going to be financially worse off because you are not there. If you are someone who’s got a mortgage and you are single you have no children, there are sometimes arguments to have life insurance. But generally the advice would be from an adviser that you don’t need life insurance. but what you would need is something like critical illness cover or income protection, possibly both of them if you are able to

The key thing with life insurance for anybody who’s wanting to look at it and take it out is how much is it going to cost that comes down to a number of different things? It’s how much cover you want of how many years it’s your age. It’s your smoker status. It is often your height and weight coming to it your job can come into it if you are so talk about UK based policies here.

If you go outside the UK quite often either holidaying or at work that can come into it. If you are doing some super crazy fun spots most weekends that can come into there is so many things that can come into the pricing of a life insurance policy that it’s really hard to say. So, you know, we can’t just turn and say I’ll with your 30 years old and you want this it’s gonna be this price. It’s individual to each person. And what can happen at times as well as with those things that was just mentioning in terms of how they might sometimes influence the premium they can lead to what’s known as premium increases.
So as an example, if you are a smoker now that’s for insurers generally means that you’ve used any form of nicotine products in the last 12 months. Some insurers might even consider if you’ve had any form of nicotine in the last five years, but generally if you were smoker your premiums are probably going to be double that of a non-smoker.

If you have a higher BMI, it could be at certain stages and levels of BMI. That the insurers do start to increase the premiums again. With some conditions the insurers will increase premiums too. And when we’re talking about the increase of premiums, it’s not just random numbers that they’re going by, so generally it would be things like, let’s say there’s a medical condition and they show things that there’s a bit of an increased risk that you might claim on that policy. Well, they might decide to increase your premiums by 25%. It could be 50%, 75%, 100% and it can go up to a couple of hundred percent sometimes and what’s quite interesting though, is that with a lot of life insurance because people hear this and automatically it doesn’t feel nice to know that your premiums are being increased due to a health condition that there’s no way of avoiding that that is not a nice experience something I experienced myself.

And but life insurance itself is incredibly cheap. So it could be that the starting premium is about five pounds. So if they’re going to increase it by 50% well, the premium becomes seven pound fifty. So even though we are seeing these increases and I’m not saying that the small amounts make it okay that these increases are there but I’m just trying to say that it isn’t always the expense that people think it’s going to be. There are times undoubtedly where the premiums are becoming quite high and that can often happen if you’ve had a medical condition that has been diagnosed quite recently. Where you’ve maybe had to have some quite intense treatments to get through it and the ensure as maybe seeing well at this moment the premium is gonna be this that’s not to say it’ll be the premium forever.

We could always go back we can always look and check different things and the important thing as well is to know how the premiums are getting changed. So sometimes you might see silly figures when it comes to the premiums and there’s two ways that ensure us on increase the premium. So there’s the one way that I just mentioned where they may be multiply the premium by a percentage and there’s another way, where actually the insurer increases the premium based upon however many thousand pounds worth of cover you’re taking out. So if someone’s taking out 50,000 pounds, then they’d have an increase of 50 of these extras per thousand pounds. If you’re taking 250,000 pounds out you would be getting an extra 250 of these extra thousand pounds that will come with the insurance.

Now what’s important to know is that there are many many different insurers out there and you might find that one insurer wants to increase your premium buy so much, whereas another insurer offers your premium at standard rates. That’s where an advisor can really come into help you because we know the market and we know where to look to find the right pricing for you.

A question that we’re often asked is how much life insurance we should take out that really just depend upon the individual and it comes down to what you personally feel that you want to be paying for for these Insurance says the life insurance in itself is generally incredibly cheap and it is one of the cheapest insurance is that we can arrange now that’s not to say for everybody it is cheap because it always depends upon circumstances and how much insurance we’re going to be taking out.

So some people will say things like what I want to ensure myself for three million and then other people might say, well I want to ensure myself for 50,000 pounds and that might be absolutely right for those people but there are times as well as some people are in terms of the need for insurance. They might be trying to in a sense over insure themselves or potentially underinsure themselves. So there’s some really good kind of General guidance points to go for when you’re looking at things like life insurance. So the very first thing that we want to do is at least cover what’s known as our debts, so that would be for a lot of people their mortgage amount. Now it could be that you have a mortgage of say $250,000 over 32 years. So it’s a very minimum when it comes to insurance. We would want life insurance in place of $250,000 pound over 32 years. And the way that’s set up is very different depending upon the type of mortgage and the different ways that you’ve had that set up. But that would be really key for us to do that.

We then want to think about things like Family Protection as well and family protection is where we wanting to make sure that our family or our loved ones can cope with a financial shock that was not being there. Now that can be sometimes where it can get tricky because if you have somebody in the family who has quite significant income compared to the partner, then there is that tendency to think all the person with significant income. I really need to ensure them and some extent. Yes, you really need to ensure them but always make sure that you are looking at the whole family as well because let’s say we have somebody who’s earning lots of money, but then we have somebody who is staying at home. Maybe looking after the children. Well, actually they’re financial value can be incredibly important because the person over here who’s earning lots and lots of money, if something happens to the partner, who’s the house person not being lots of money. Well, the other person is possibly going to have to pay for my child care. They may have to reduce their hours to look after the children more. There’s lots of financial implications. And what we generally tend to say generally it’s not always the same for everybody.

Each person is individual, is that we will be looking at around three to five times someone’s annual income to make sure that if something happens that that financial shock of at least the next three to five years is going to be sort of, as lessened as is possible. And then how long does that last for? That’s another thing. So how long does that insurance last for? Well, it depends as with any of these things, it depends upon individual circumstances. So it depends upon who you’re wanting to have this money there for so we’re going into what’s known as a little bit of what’s seen as the insurable interests. So, you know, who is the insurable interest here? What’s what do we need to do and what we need to put in place to make your family, your loved ones financially secure and that is what life insurance is about. It’s about your loved ones being financially secure with you no longer being there.

So it could be that we have children and maybe we want to put the insurance in place until we until they’ve reached an age of independence. So that could be the age of 18. That would have been probably when I was younger sort of like the idea was age 18 you’re independent. I think now we’re going more towards 21, 25. I’ve even spoken to people who are concerned and even what that age of Independence to be seen as sort of the age of 30. It might be that you’re looking of funding somebody who’s in a care home and maybe you want to make sure that you have something in place to make sure that something happens to you that your parents is still looked after they’re still able to stay in the same care home and it’s a bit of a strange concept to think of actually when life insurance we tend to think of going down the generations instead of going upwards, but it is a potential consideration to have there. There are lots of lots of ways to set life insurance up. So we have things that are known as term life insurance that have a set period of time, we have whole of life insurance that will just keep going and going until you do pass away.

We have things known as family income benefit, which is wonderfully confusing because it says income benefits in it, but it is life insurance and that’s all about ensuring a certain amount of like annual income for your family again over set period of time. There’s many many ways to set apply for insurance but generally as a minimum we want to make sure that those debts are covered. We don’t want to have family to to worry about having to be paid the mortgage or of you to maybe think about your family having to leave the family home in the event they do pass away because they can’t keep up with those with payments in the bills now as well that your financial support to the householders gone. And then we also want to look at what’s known as the family protection. So yes, we can pay off mortgages we can get all that done and sorted fantastic. We’ve got insurance and place there, but also do we want to put something in place as well just to make sure that our family can maintain their standard of living and not struggle financially if we pass away.

When it comes to exclusions and life insurance policies, you might be surprised to know that there isn’t really many that are in place. So the majority of UK life insurance policies will come with an initial 12 month self-harm and suicide exclusion and something that’s quite surprising is how many people do think that these exclusion for that situation would just be non-stop just always in place in the policy, but it isn’t it is just the initial 12 months. What’s quite important to know as well as that if for whatever reason you change policies you change to a different insure of Staff new policy elsewhere. Are you starting a new policy with the same insurer? That’s 12 month period would start again. After the 12 months it would stop. It shows a far more likely to increase the premiums on a policy than they are to put an exclusion for life insurance.

So terms that we sometimes get those kind of premium increases would be things like a high risk job really risky sporting activities or sometimes pre-existing health conditions can lead to premium increases but in general when people are thinking about its exclusions for your mainstream standard insurance, it would usually just be an initial 12 month suicide exclusion. There are specialist insurers that you can look at. And they will provide policies which maybe have a pre-existing condition exclusion and they might have they often can bundled with some other exclusions as well potentially things like and they won’t pay out if you pass away due to alcohol or drug abuse or potentially if you were doing something illegal and unfortunately passed away, they won’t pay out in that situation.

So it’s just really important, if you are looking at life insurance policies that you just really double check all that exclusion set is the majority of them will just have that initial 12 on the suicide and self-harm exclusion, but depending upon these show you go to if you are ending up looking at a specialist insurer there can be extras in there as well. And it’s just really important that you know what they might be.