Life insurance
Protecting your family and dependants
Life insurance is about providing some financial security for people who
depend on you if you died. (So if you don't have a partner, spouse or civil
partner, children, or other dependants, you may not need life cover.) It also
applied for Businesses, not just families.
To make sure you buy the right amount of cover, with the right terms and
conditions, you should consider getting some advice. The adviser assesses what
your family would need, and shops around for the cover that suits you best.
Always answer questions as best you can and disclose any existing medical
conditions when asked. If you don't give the full facts, you could invalidate
your policy and the insurance company won't pay out.
There are two main types of life insurance: term insurance and
whole-of-life insurance.
Term insurance (also called term assurance) pays out only if
you die within a certain term, and whole-of-life insurance pays out whenever you
die. Some whole-of-life policies also contain an investment element to them, but
such investment-type policies cost a lot more than
protection-only insurance.
Term insurance
This is the simplest and cheapest type of life insurance, and is known as
term insurance because you choose how long you're covered for, say, 10, 15, or
20 years (the 'term', and is usually the same term as your mortgage term).
Term insurance only pays out if you die within the term you've agreed. If you
live longer than the term, you get nothing. As a couple, you can also take out
term cover in both your names, with the policy paying out if either of you die
during the term.
Things to look out for
- What type of policy do you want? For example,
- family income benefit (a policy which pays out income rather than a
lump sum),
- increasing policy (where cover and premium rise over the years),
- decreasing policy (where cover and premium fall over the years),
- renewable policies (which let you extend the original term).
- Check for exclusions - in other words, when the policy won't pay out.
For example, most do not cover death due to alcohol or drug abuse. You might
not be covered while taking part in risky sports. If your health is poor
when the policy starts, some causes of death might be excluded or you might
be refused cover altogether.
- Premiums shown are usually fixed for the whole term. There are also
contracts where premiums are reviewable after a certain period, usually five
years.
- How flexible is the contract? Can you reduce or increase cover easily as
your circumstances change? Are there extra charges for doing this? Does
cover stop immediately if you miss a payment or is there a period of grace?
- By paying extra, you can usually include a waiver of premium. It pays
the premiums if you can't work because of a long-term illness so that your
cover is not interrupted.
- If you want to change insurer, check the level of premiums for the new
contract before switching (premiums may have gone up because of older age or
because you have developed medical conditions). Also check the new level of
cover compared to the previous one. Different benefits may be available, and
different exclusions may be applied – for example you may not be covered for
medical conditions that have developed before the switch even if these were
covered under the previous contract. If you do decide to change, make sure
you do not cancel your original cover until you are fully covered by the new
contract.
- The policy can be set up under trust. This means that in the event of
death, proceeds of the policy are paid directly to dependants of your
choice. Provided a trust is set up properly, there may be benefits to doing
this. However, using a trust may not be suitable for everyone and because of
the complexities, we recommend you seek financial and legal advice.
What does it cost?
This depends on several factors, such as the amount of cover you want and the
length of the term. Naturally, it's also based on the likelihood of your insurer
having to pay out: if you're a smoker and do a dangerous job, you'll pay more
than a non-smoking office worker. Your medical history may also be taken into
account, and that of your immediate family. Term life cover also costs more for
men because, on average, they don't live as long. Always compare what's covered
by a policy, not just the price. Some might be cheaper than others, but they may
not offer the same level of protection.
Whole-of-life insurance
Whole-of-life insurance pays out an agreed sum when you die, whenever that
is.
What does it cost?
These policies will cost you more, partly because they will pay out whenever
the event (death) happens, but also because of the various charges that come
with them. The cost also depends on your lifestyle: if you're a smoker and do a
dangerous job, you'll pay more than a non-smoking office worker. Your medical
history may also be taken into account, and that of your immediate family. Life
cover also costs more for men because, on average, they don't live as long as
women. Always compare what's covered by a policy, not just the price. Some might
be cheaper than others, but they may not offer the same level of protection.
1st Call 4 Mortgages are able to advise on and arrange Life Cover. Please call
us on 0845 838 6938 to discuss your options.
|
