Life insurance is an agreement between two parties in which one party agrees to pay monthly premiums in exchange for a designated sum of money paid out if the insured party passes away.
Life insurance can also take slightly altered forms, for example, some policies may pay out on a monthly basis, while others may pay the lump sum while the insured party is still alive if the policy holder confronts certain medical conditions.
A life insurance policy generally works like this:
Step 1: Find a policy you’re happy with and enter into a contractual agreement with an insurance company.
Step 2: Pay your premiums, these are usually paid monthly, but some policies include quarterly or annual premiums. Failure to make your payments on time can result in a cancelled policy.
Step 3: If you have entered into a whole of life policy, then just continue paying your premiums and if you pass away the funds are sent to your beneficiary. With a term policy, if you pass away while the policy is still active the funds are sent but if, instead, the policy period comes to an end, you can choose to either let the policy end, attempt to create a new policy with the same provider, or you can try to find a new policy with a different provider.
The average cost of life insurance in the UK for a single policy is £9.71.
The exact amount life insurance will cost you depends heavily on your personal circumstances. A twenty year old non-smoker will likely pay less per month than someone with several pre-existing medical conditions enjoying their golden years.
Costs depend on your age, health, and needs. Let’s say, for example, you’re a 40 year old non-smoker with no health conditions, for cover spanning the next 30 years and a payout of £150,000, you could be expected to pay around £10.31 a month.
Whole of life insurance does just that—covers you for your entire life, as long as you keep paying your premiums. While premiums are usually higher for whole of life insurance when compared to other forms of insurance like term insurance, you get peace of mind from knowing your insurance policy doesn’t need to be renewed at a new rate. Whole of life insurance also accumulates a cash value, which term insurance does not.
Term insurance provides coverage for a set number of years, such as, five years, ten years, of thirty years. Term insurance is sometimes taken out to serve a specific purpose, for example, a thirty year old parent may decide to take out a thirty year term insurance policy for the purpose of offering their children and partner some financial protection in case they pass away.
Unlike a single insurance policy, family insurance covers more than one person under the same family. This can sometimes be more cost-effective than taking out multiple single policies and it also provides more ease when it comes to managing, paying for, and claiming on the policy, due to the centralised nature of this option.
Are you the sole earner in your family? If so, it’s natural to want to ensure your family are protected during that pivotal initial period if your death were to occur. Family income benefit is an optional add on that provides your family with regular income if you die.
Critical illness cover provides covered parties with a cash injection if diagnosed with one of the illness or disabilities covered by the policy. This can provide much needed support as you adjust to life post illness.
Which critical illnesses are covered?
Each insurer and policy will outline the specific illnesses covered. Examples of illnesses usually covered include cancer, heart disease, and multiple sclerosis. Many policies also cover long-term health issues such as permanent blindness, deafness, and loss of limbs.
When might a critical illness policy fail to payout?
While critical illness payout rates sit above 90%, it can be natural to wonder what might prevent a payout from occurring. Claims may be denied if crucial information was omitted or misrepresented when the policy began. That’s why it’s particularly important to ensure you provide all relevant and requested information at the start of the policy, so you’re not caught by surprise later down the line.
Terminal illness cover is a living benefit in which you receive the lump sum, or a portion of the total sum, while still alive if you’re diagnosed with a terminal illness and given a certain period of time to live, usually up to 12 months. This can help you manage mortgage costs and bills while you spend more time with loved ones.
Over 50s life insurance is designed for people over the age of 50. Beyond the age difference between this policy and an under 50s policy, the other key difference is the purpose in taking out insurance. With under 50s insurance, the purpose is often a contingency plan to cover a certain period as family members adjust, however, with over 50s insurance the purpose is usually to leave behind a gift, payment for a funeral, protection for family members, or a legacy. Over 50s policies often have higher premiums.
This type of life insurance is designed to provide support to mortgage holders as the amount of coverage decreases over time. Let’s say, for example, your mortgage costs £200,000 spread over the next 20 years. You could take out decreasing life insurance in line with that period and amount so that if you die, the policy will pay off your remaining mortgage and your family wouldn’t need to repay the rest of the cost of the property.
Increasing life insurance does the opposite—it increases in amount over time. This is to help cover inflation and the increased cost of living.
Joint life insurance covers two parties under one policy. If one party dies, the other will usually receive the funds and the policy will likely end. In some cases, the policy remains until both parties die or until the term ends. This can be a suitable policy for business or life partners as it can provide some financial protection to remaining partners if one dies, or to children if both die.
Variable life insurance is a mixture of an insurance policy and an investment, it is more risky than other policies and can go up or down based on market performance.
No one needs life insurance, just like no one needs health insurance or contents insurance. But life insurance can provide some peace of mind and protection for your family, in particular if you have debts, are a financial contributor to your household, or are repaying a mortgage. Some policies are even designed specifically for mortgage holders, we can help you find one, just fill in the form here.
A life insurance policy when you’re young and healthy can be nice, considerate way to protect and safeguard loved ones should the unexpected happen. Plus, life insurance premiums are often lower for younger, healthier policy holders.
Again, you shouldn’t feel pressured into thinking you need life insurance. However, many single parents do look towards life insurance as a way to provide a family safety net in case something were to happen. For instance, if you were to die, the funds could be used to cover your funeral, rent, any bills you’ve left behind, or they could even be left in a trust that your children could access as a gift once they turn a certain age. This can be a nice way to feel as though you’re contributing to their future no matter what happens.
Several insurers are happy to take on policy holders with chronic illnesses. Do be aware you may be asked to undergo a health exam, may have to answer questions about your condition (even at the quoting stage), and will likely have to pay higher monthly premiums.
Yes, you can. In fact, there’s no real limit to how many policies you take out.
Yes, inflation usually goes up and if the amount your policy will pay out does not go up with it, then the final value of your policy if a payout occurs will be less as time goes on. If this is a concern for you, you might want to consider an increasing life insurance policy.
Yes, high–risks jobs can result in higher monthly premiums.
Yes, high risk hobbies can result in higher monthly premiums. Tell your life insurance provider if you regularly engage in rock climbing, cave diving, mountain biking, or another extreme sport.
You can take out life insurance on someone if you can demonstrate “insurable interest”. This would mean you would experience a financial loss if that person were to die. You will also need that person’s consent.
What is ‘insurable interest’?
Insurable interest is a term that signifies a person’s death would have a financial impact on you. For example, let’s say your wife is the sole earner in your home and you depend on her financially, her death would result in a significant impact on your finances.
Can I take life insurance out on my parents?
Yes, with their permission. In this instance, you could likely prove insurable interest by demonstrating their death would result in your needing to repay any remaining debts or mortgage bills. You could also prove it by showing that you would be responsible for arranging care for the remaining parent.
Can I take life insurance out on my partner?
Again, you’ll need their permission, but yes, you can take a policy out on your partner. Many couples turn to joint policies to cover both partners at a reduced cost.
Can I take life insurance out on my sibling?
Yes, only if they consent and you can prove insurable interest. An example of insurable interest as it relates to a sibling would be if guardianship of your sibling’s child would fall to you in the case of their death. The costs of raising your niece or nephew would make a good case for proving financial impact.
Can I take life insurance out on my business partner?
Yes, in fact, proving insurable interest here should be fairly straightforward as you can likely prove that the impact your business partner’s death would have on the business would cause a financial strain either on your income or outgoings.
Can I take life insurance out on someone without them knowing?
No, you cannot take out in insurance on someone without their consent unless they are an underage child or grandchild for whom you are financially responsible.
Yes, many life insurers cover people with pre-existing conditions. Be aware premiums may be higher and you may be asked personal questions about your health.
Yes, it’s hard to find a new policy over the age of 85 and you have to be over 18 to take out your own policy.
Usually, your policy will be cancelled and you will no longer be covered. Talk to your insurer quicky if you feel this may occur, as they may be able to provide you with a short grace period or they may be able to restart your policy once you’re able to pay. Bear in mind premiums often increase in cost the later in life you set them up, so if you do lose your insurance coverage you may not be able to find coverage at that cost again.
That depends a lot on the policy you take out. Many insurance policies will provide a lump sum if you die, some will provide a monthly cash injection to your family for an approved period of time. Others can provide living benefits, for example, terminal illness or critical illness cover will provide either lump sums or monthly payments to you directly if you fall sick with one of the preapproved illnesses. Be sure to check the terms and conditions of your policy before agreeing to it.
Yes, many life insurance policies include cancer cover. There are several types of cancer cover. One example of cancer cover would be standard life insurance, in which your family would receive the agreed funds if you die from cancer while you’re covered. Another example of cancer cover would be critical illness or terminal illness cover, in which case, you would receive monthly funds or a one-time cash injection if you are diagnosed with cancer or given up to 12 months to live.
How much coverage you should take out depends on your financial and family goals. Let’s say, for instance, you have debts in the amount of £20,000 and £50,000 remaining on your mortgage, your husband works and earns enough to cover his own living costs, but not enough to cover your portion. In this case, you might consider taking out £74,000—£50k for the mortgage, £20k for the debts, and £4k for the cost of your funeral.
To file a claim, gather all relevant documentation (for example, a death certificate and your policy document) and contact the insurance company directly. They will likely send you a few forms to fill in and will provide some guidance on what happens next.
Usually, the reason an insurance company won’t pay out is because false information was given when the claim was taken out or vital information was missing. That’s why it’s important to provide all relevant details when taking out your claim.
Maybe, that depends a lot on your policy, insurer, any pre-existing conditions, and how much time has passed since you took out the policy. For example, an insurer probably won’t pay out if someone were to take out insurance and then commit suicide within the proceeding year or two, they also probably won’t pay out if the policy holder has a pre-existing mental health condition, such as depression, that they either did not disclose, or did disclose and agreed to exclude from coverage.
What could constitute a fraudulent life insurance claim?
Fraud is when someone wilfully and purposefully deceives and insurance company when claiming on a policy they are not entitled to. An example of a fraudulent life insurance claim would be lying about a pre-existing condition when applying for life insurance.
Yes, but you may have to pay higher monthly premiums. The impact to premiums will likely occur regardless of how many you smoke a day.
I have quit smoking. Will my past habit impact my life insurance?
That depends on when you quit smoking. If you quit 5 years ago, usually, your past habit will not impact your premiums. However, if you quit a few months ago, you may still be considered a smoker in the eyes of the insurer.
Life assurance covers the policy holder for their entire life, it’s another word for whole of life cover. Life insurance can be used to refer to term insurance, which covers the policy holder for a certain period, or the phrase can be used colloquially as an umbrella term to describe both forms of cover.
This is a policy offered by employers as a benefit. It usually involves a cash sum being paid out to family members or loved ones if you die while employed by that company.