Life Insurance

Protect your family with life insurance

What is life insurance?

Life insurance is a financial product available to adults in the UK who are looking to protect their family from any financial commitments (mortgage/debts/child costs) they may have or to leave money to family members for their future. A life insurance policy pay-out is set-in-motion upon the death of the policyholder - in which case the insurer is informed, and the tax-free pay-out will be released to the beneficiary(s) (family). For example, if you take out a policy for £250,000 and nominate your partner as beneficiary; when you die, the insurer will pay your partner £250,000

To receive this tax-free pay-out, the policyholder will have been contributing a set amount of money (often referred to as the premium) monthly or annually.

You will likely set up your policy through an insurance broker who in turn will set up an agreement between you and an underwriter. The money you pay each month (your premium) will be paid to the underwriter the policy is with.

It’s also important that you have told the truth in your application and haven’t broken the agreement since the application. An example of this might be that you didn’t smoke when you applied, but you took it up a few months/years after, therefore voiding your agreement.

Working with an Independent Qualified Advisor

Although the agreement is between you and the insurance underwriter, it's often common and beneficial to work with an Independent Qualified Advisor, who will act on your behalf to find the best deal on the market for your circumstance. The advisor will act as a bridge between you and the underwriters, so they will ask you the questions required by the underwriter to generate a quote. The advisor will be rewarded by getting a pay-out from the underwriter, often there would be no cost to you for the use of their service and you get the benefit of their access to the whole market, which won’t be accessible to you without them.

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How does life insurance work?

A life insurance policy is an agreement put in place between you (the policy holder or insured) and the underwriter (a company that specialises in generating the life insurance policy.)

Underwriters gather information on thousands of customers to determine the risk of insuring an individual. When you take out life insurance, your insurance broker will ask you a series of questions. The answers to these will tell the underwriter how risky it is to insure you and therefore how much to charge you each month.

You can set the timeframe in which you want the agreement to last and the amount you want cover for.

Depending on what you are looking to cover you might use that as a base of how much cover and the length of time you want to pay towards to policy.

If you wish to cover a mortgage, then you might set the policy pay-out to the outstanding mortgage balance and the length of time left on the mortgage.

If you are looking to protect your children, you may calculate the years until they become financially independent and the cost of each of those years to cover their living expenses, additionally you may consider covering university fees or a deposit on a property.

For example, if you owe £250,000 on your mortgage and want that to be paid off in full when you die, you would take out cover for £250,000.

Similarly, if you have a child who is 2 years old and want to leave enough money to cover their upbringing until they reach 18, you would need to leave enough money to cover 16 years of their life. Let’s say you want to leave £20,000 per year for their care, over 16 years that’s £320,000

You can of course do both and so here, would need £250,000 + £320,000 worth of cover. Whilst these amounts can sound very big, they’re completely common in life insurance terms

Further reading: What Is An Underwriter?
Time to review your current life insurance policy?

Why might you want to take out life insurance?

Fill in a web application

Speak to an advisor about your requirements

Answer questions regarding your health, lifestyle and personal information

Receive quotes and agree one you like

Complete paperwork required for life insurance policy

Start paying your premium and ensure peace of mind that your family are protected

What is the cost of life insurance?

Life insurance can range from £5 a month to £100+ a month, with the monthly cost determined by the individual circumstances of the person taking out the insurance policy.

There is a range of factors that might impact the price. These are often related to your mental and physical health, your lifestyle (e.g. smoking, drinking ), and age.

Why might you want to take out life insurance?

There are a range of reasons you may consider taking out a life insurance policy.

Mortgage

You may have a mortgage, which you would like to have paid-off to protect your dependents from taking on the cost on their own. It might be that the mortgage is unaffordable without your salary after you’re gone. If you have a mortgage on your own, it might be that you wish to protect your beneficiaries from taking on the mortgage or that you wish to leave the property to them, paid in full. If your mortgage is on your own, it might be that you wish to protect your beneficiaries from taking on the mortgage from your estate, which might not be affordable for them, depending on their circumstance.

Loans & other debts

If you have loans and other debts, such as car finances, store cards, credit cards; a life insurance policy can be used to cover these outstanding debts to avoid the cost being passed over to family members.

Children

The cost of bringing up children can be expensive and if you or your partner were left to do this on their own, it might not be affordable and so could jeopardise the future or lifestyle of your family. By taking out life insurance, you can protect your children and potentially set them up for their adult life.

Funeral

Funerals are another main reason you may consider taking out a life insurance policy. Funerals can be an unexpected costly surprise to your family, which they may not have budgeted for or have the funds to cover. By having an insurance policy in place, you can leave enough to cover these costs for your family.

What are the different types of life insurance?

There are a range of life insurances available to people in the UK. The type of insurance you
take out is largely dependent on your circumstances. These are the most commonly
available through your life insurance broker.

Level term life insurance

Level term life insurance is a policy that pays out a fixed amount of cover if you die during the time frame (term) agreed. The premiums (monthly payments) are also fixed for the length of the policy.

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Decreasing term life insurance

Decreasing term insurance is another type of 'term policy', but the premiums and pay-out reduce each year the policy is active. The pay-out will only be made if you die during the agreed term. Decreasing term insurance is also referred to as mortgage protection insurance, as it's frequently put in place to cover the outstanding mortgage balance. As the mortgage balance reduces with your repayments, the amount of cover needed also reduces.

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Over 50’S life insurance

If you are over 50, you will be eligible for an over-50s life insurance policy. These are generally smaller premiums and pay-outs than term insurance policies, used to cover the costs of a funeral instead of the mortgage. You won’t have to answer any questions to be accepted for an over 50s plan as acceptance is guaranteed with most providers.

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Whole of life insurance

Whole of life is exactly that, you have a life insurance policy that is set for the rest of your life as long as you continue to pay towards the plan. This means your family will receive a pay-out when you die, no matter your age.

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Single or joint life insurance?

If you are in a relationship, you might consider taking out a joint insurance policy. This means that if
you were to die the beneficiary of the policy will be your partner. This is a common plan when
couples have kids or a mortgage together.

What are the different types of life insurance?

What is covered by life insurance?

If you pass away suddenly by accident or an unexpected illness (heart attack, stroke or cancer) you will likely be covered, but it’s always important to confirm the terms with the life insurance broker and the terms and conditions you sign.

What isn’t covered?

You may not be covered if you have a dangerous job or have died in a dangerous sport. Most insurers will also not pay-out if you have died due to suicide, alcohol abuse or drug abuse.

How do I make sure my family gets the claim?

If you have a joint policy, the pay-out will go to the individual you have the policy with. If it’s a single policy the beneficiary should be named on the paperwork when you start the policy.

If you wish to change the beneficiary you can contact the insurer to find out if this possible and
the requirements to do so.

If a beneficiary isn’t named on the paperwork the pay-out will be put to the estate and distributed
according to your will.

Are there any alternatives to life insurance?

If you are looking to cover just a funeral, then you might look to put a funeral plan in place.
This might be a good alternative if you are over 50 and considering an over 50’s insurance plan.

Can I make changes to my policy?

You should be able to change details on your policy. You will need to contact your broker or the insurer to do this. It might impact the monthly premiums, depending on what change you wish to make.

Life insurance is a financial instrument that serves a purpose in protecting those you love from any financial turbulence due to your death. If you want to find out more about life insurance you can speak to an FCA regulated life insurance expert today for free impartial advice via this websites.

Further reading: What is an IFA? What are the benefits of using an IFA over going direct to the underwriter?

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