Questions About Life Insurance?
It’s a great way to create a safety net for your family’s financial future. But knowing where to start and what the best options are can be very frustrating and confusing. At Life Insurance Cover we have compiled a few of the many common questions from customers.
With so many types of life insurance policy available in the UK, it can be confusing to find the best protection and what kind of policy to take out. Within this FAQ’s guide, we hope to answer some of the queries and misunderstandings concerning life insurance. This will allow you to have a better idea of what policy will suit you and your family.
In The FAQ’s Guide:
What Does Life Insurance Cover?
A life insurance policy, once taken out insures your life and will pay out once you have passed away. In some circumstances you may receive a payment from your policy if you are diagnosed with a terminal illness. The payment will be either in a lump sum or a monthly or annual income, paid to the beneficiaries named in your policy.
What Is Term Life Insurance?
Almost all life insurance policies are term policies, which last for a designated period of time. The most common time periods are 10, 20, or 25 years, after the term period the policy will lapse. If you pass away after the policy has expired, your family, beneficiaries will not receive a settlement payment. Term policies are much cheaper than the whole of life policies that last indefinitely and make up the bulk of life cover products sold.
How Long Should My Policy Run For?
With all levels of protection including life insurance, it’s a fine balance of protecting financial and family obligations. Most customers at Life Insurance Cover try to match the length of their term life policies with their financial and personal obligations. For example: matching the expiration of a policy with the final payment of a mortgage.
How Much Life Insurance Do I Need?
This has a 2 part answer to make it easier:
Personal circumstances: By working out your financial outgoings for the future, including the amount of your mortgage, size of your family and your usual living standards. Usually 10 times your salary is a healthy benchmark for the sum insured. Make sure that the benefit payment that your family receives is what suits their needs. If you opt for a lump sum payment, consider the sum that would pay off the mortgage on your family home. Or if you choose a policy that pays out an income, consider your family’s current monthly outgoings, including mortgage payments or rent.
Affordability: As with most products that you can potentially purchase budget/affordability is extremely important. You will to weigh the value of any future claim payment against the cost of premiums today. If you commit to a policy that exceeds your budget and payments stop, the policy will lapse and leave you and your family unprotected.
What Will My Premiums Cost?
The costs of your monthly premiums will depend on the amount that you have chosen as a potential insured value (the sum insured) and the risk your insurer thinks you could be. This is worked out as how likely they believe you are to pass away during the term of the policy. Your premiums are influenced by your age and health. Including pre-existing medical conditions, whether your smoke, how much drink, and how much you weigh. Insurers will also consider your occupation and how hazardous it could be.
Young, healthy non-smokers who drink moderately or less, have no history of illness or medical conditions, and work desk jobs will find the cheapest life insurance premiums.
What’s The Difference Between Life Assurance & Life Insurance?
life assurance policies such as a whole of life policy lasts indefinitely and delivers a payment to your family or beneficiaries whenever you die, even if it is many years after you took out the policy. It is called assurance because a payment is guaranteed. Conversely, a term life policy lasts only a specified period of time and your family won’t be able to claim on it if you die after the term has ended. A whole of life policy will guarantee a payment to your family but it is more expensive than a fixed term life insurance policy.
Can I Get Life Insurance If I Have A Pre-existing Condition?
Within the life protection market only a few people can find no life insurance products at all. Pre-existing medical conditions like diabetes can make life insurance more difficult to obtain and more expensive to buy. Some insurers will exclude you outright if you’re unwell, while others will grant you coverage but with a variation in premium costs. We have a dedicated section to pre-existing medical conditions which goes into further detail. Also at Life Insurance cover we have created an easy to use A to Z of common medical conditions.
Will My family Pay Tax On A Life Insurance Pay Out?
Any payment from a life protection policy are not subject to income or capital gains tax. It would be considered part of your estate and be subject to inheritance tax. But you can protect any life insurance proceeds from inheritance tax by writing the policy in ‘trust.’
Will My Life Insurance Policy Not Pay Out?
All Life protection policies come with exclusions which will be detailed in their terms and conditions. Typically, policies will not pay out if a policyholder dies as a result of suicide; alcohol or drug abuse; as the result of a hazardous sport or hobby, like mountain climbing; or in a war or as a result of terrorism. At Life Insurance Cover we explain all of the terms and conditions from each different insurer, as they vary between each company.
Do I Need Life Insurance?
If you’re single and do not have people who depend on you, life cover may not be a priority right now, but could be a consideration for the future. But if you have family who rely on you and your income, who would struggle to manage financially in the event of your death, you should consider a life insurance policy. Or if you would like to create a legacy for your family, it may be worthwhile considering life cover.