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Everything you need to know about life insurance for Dads

Life insurance for Dads

Author: Daniel Sharpe-Szunko

Everyone is different and everyone’s circumstances are different too. Most dad’s will feel a sense of responsibility towards protecting their families and children.

Some of the main events that might prompt us to consider life insurance include:

  • Marriage
  • Becoming a Dad
  • Buying or renting a home
  • Divorce
  • Losing a loved one

Us dads need to stick together and as a proud father of two amazing children myself, I know how tough it can be.

Parents have a difficult job raising kids and managing everything else that life throws at us. It can sometimes seem like an impossible task but the most important thing to all parents is the wellbeing of our children.

Dads have historically been seen as the breadwinner in most households and the person needing life cover. Obviously things have changed dramatically over the past several decades and perceptions have evolved.

Interesting stats:

  • 72.5% of two parent households have both parents in work*
  • 45.5% of two parent households have both parents in full-time employment*

What’s the cost of raising a child in the UK?

The current estimated cost of raising a child to age 21 in the UK has increased by 63% since 2003. This is an increase of £2,000 per year which is on average almost double the rate of inflation.

The cost of a child in 2019:

  • £151,000 for two parent households**
  • £185,000 for single parent households**

When we consider that a child loses a parent in the UK every 22 minutes which equates to an unbelievable 23,600 per year.

How much does life insurance for a Dad cost?

According to a recent survey, most UK adults felt that the cost of life insurance was roughly four times higher than it actually is. Most dads could protect their families and their children for less than the cost of a couple of pints a week.

The cost of life insurance as of today’s date (18.06.2020) for a male, non-smoker, age 30 for £150,000 over 30 years is just £7.41 per month (£1.85 per week).

When you consider that the average mortgage debt in the UK today is £130,000 with a term of 20 years.

Should dads get life insurance if you’re expecting a baby?

There’s no bad time to sort life insurance so if you’re due to have a baby in the next few months, or even if you’re planning to have a baby, then get it sorted.

Becoming a new parent is an incredible time but also will be one of the most stressful and busiest times. It’s easy to forget about things like sorting your life insurance out if you’ve just had a new baby.

If you can sort out your life cover before your baby arrives then it may give you more time to consider your options properly. Make sure that you budget for this properly so you know that you can afford to maintain your premiums during maternity and paternity periods.

If you have a pre-existing medical condition then applying for life insurance might not be instant. In some cases we have seen applications last for several months while we obtain medical evidence from a GP.

Life insurance rates for new dads

There’s no better feeling in the world than the first time you hold your new born baby. As a dad, it’s the start of a long road of mixed emotions.

Life insurance sometimes unfortunately can slip to the bottom of the list of priorities which is understandable. Even though it’s a busy time, we should all be thinking about every way possible to protect that new born child.

Life insurance can provide them with instant financial protection if anything happens to either parent. But also, it will be cheaper to get life insurance sorted as early as possible while you’re still young.

Why is life insurance cheaper for younger dads?

Life insurance premiums and costs are based on your age so you should try to get it sorted as early as possible.

As we grow older, the risks of becoming ill and lifestyle related health conditions grows, so premiums for life insurance can be far higher.

In our experience, we see many young fathers requiring cover to protect their children which is fantastic. However we also see many fathers who have not thought about life cover until later in life, who have then developed conditions like Type 2 Diabetes or worse things like Cancer or Heart Disease.

“Sort it now… pay less and get your kids protected”

What about if I’m a dad already and have life insurance?

Firstly, if you’ve already got children and have life cover in place already, or if you were clever enough to get it sorted in the past then that’s fantastic.

It’s always advisable to review that cover to make sure that it’s appropriate or suitable for your new situation. You’ve got plenty of options with life cover because it’s pretty flexible so worth speaking to an adviser to find out more.

Some of the most common misconceptions about life insurance:

  • It’s a contract and you can’t cancel it or change it
  • There are charges for cancelling life insurance
  • You lose the benefits that you’ve already got
  • Insurers don’t allow you to have multiple policies

The good news is that you’ve got lots of options and the fact is that you ‘should’ review your life cover regularly. Especially at major events in your life such as having a child.

How much is life cover for older dads?

It’s true that as you get older and every time you pass another birthday, life insurance premiums will go up. The cost of cover is based on your age so will increase every year, which is why it’s better to sort it earlier in life.

If you haven’t sorted your life insurance earlier, or you need more cover, then it’s not a problem. You should just expect that you won’t pay the same as you did or would have done in your 20’s or 30’s.

There’s also health and lifestyle to consider, so if you’ve had a medical issue then that will be taken in to account. An expert like iam|INSURED will be able to help you to get fairer rates based on our many years of expertise.

Some of the main medical conditions that may become a factor in later life:

  • Obesity (high BMI)
  • Type 2 diabetes
  • High cholesterol
  • High blood pressure
  • Heart disease
  • Kidney disease
  • Mental health conditions
  • Cancer

Most medical conditions and other risk factors like occupations and activities can be covered, so that shouldn’t be a problem. Again you just need to consider this in your calculations for the premiums you might pay.

What about life insurance for working dads?

As mentioned above, most families will have both parents working either full or part time. So it’s important to make sure that if either income is lost then you replace that to make sure your lifestyle isn’t affected.

Life insurance is designed to replace the income of a family member if they become ill or even worse. In the event of the unfortunate loss of a parent, then you would want to make sure that you’re family don’t suffer financially.

You could look at several options for replacing your income if you weren’t able to work or were no longer around.

Some of the main life insurance options for working dads are:

  • Term life insurance (family protection)
  • Decreasing life insurance (mortgage protection)
  • Family Income Benefit
  • Income Protection
  • Critical Illness Cover
  • Personal Accident Insurance
  • Health Insurance

All of these products are designed to help you and your family in different ways if something happens to you.

It’s best to think about what’s most important to you and what would you want to protect.

What about self-employed dads?

In many ways it’s even more important for self-employed dads to get cover sorted, and especially if you just work for yourself. If your business would suffer if you weren’t able to work, then you should seriously consider protecting yourself.

There are also several tax efficient products which are available to self-employed people which can be paid through the business. You should speak to a business life insurance expert like iam|INSURED to find out more.

There’s an estimated 4.95 million*** self-employed workers in the UK, of which 920,000 work in the construction industry.

Life insurance for single dads

If you’re a single parent or a single dad, then you’ve got a different responsibility to two parent households. You might share childcare with your ex-partner or you may unfortunately be a widowed parent.

Life insurance can be set up easily on a single life basis which is common in this industry, as not everyone is part of a two parent household.

Also, you might want to set your policy up under a trust so that you know that only your children will benefit. We see this happening commonly where 2 parents have separated and the parents simply want to protect their children.

It’s often advisable to speak to your ex-partner to make sure that they’re aware of what cover you have in place.

Also, if you’re solely responsible for the financial security and well-being of your children then life cover is very important.

What if I’ve separated from my partner?

We often get asked by parents who have separated, to sort out cover for their kids which, could be from the old or a new relationship. It can become difficult to know what to do for the best and what your options are in the event of a separation.

Some of the main things to consider:

  • Ex-partner: you might not want your ex-partner to benefit from a life insurance pay-out if you die. In these circumstances you can write your policy in to Trust which can express your wishes to pay the benefit directly to your children
  • Joint policies: many people take out life insurance with a partner to protect their children which is normal. It might be that you continue to pay for this policy jointly or individually, or you could take out a new policy on a single life basis
  • Children from 2 different Mums: It’s possible that you could have children from different relationships with different mothers. In this situation there are several options to how to protect children in this instance and usually a Trust can cover this

The important thing to consider is that you’ve got lots of options so have a conversation with an adviser to see what you can do.

What about life insurance for dads with medical problems?

Often we see situations where one or even both parents have a pre-existing medical condition. These conditions can be mild with no major impact on lifestyle, but also can be more severe.

If you’re a dad with a medical condition or health problem then you should seek the advice of an expert, like iam|INSURED. In these situations, you should make sure that the premiums you pay are fair.

Some of the most common medical conditions for dads are:

  • Diabetes
  • Multiple Sclerosis
  • Epilepsy
  • Asthma
  • Mental illness
  • Cancer (e.g. Prostate and lung)
  • Heart disease
  • Kidney disease
  • Auto-immune disease (e.g. Chron’s or Colitis)

All of these conditions can be covered in most cases so you shouldn’t feel as though it’s just not available for you.

What about life insurance for dads who smoke?

Smoker rates for dads will be higher than non-smoker rates which is due to the increased future health risks.

Recent statistics showed us that in 2018 in the UK, 16.5% of men smoke (3.9 million) and 13% of women (3.2 million)****.

Some things you didn’t know about life insurance for smokers:

  • Nicotine replacement products (e.g. patches and gum) are classed as smoking
  • Vaping (e-cigarettes) is smoking (event with no nicotine)
  • Ex-smokers can replace cover at non-smoker rates (after 12 months)

If you’ve also become a smoker and already have cover in place that was taken out before you started, then any new cover will be based on smoker rates.

What about life insurance for dads with dangerous jobs?

Dads working in dangerous jobs such as construction, agricultural, tradesmen and armed forces, might have other risks to consider. In almost all job types life cover should be available so don’t let that put you off.

Often with hazardous occupations, life insurance is readily available at a fair price with no real difference to standard cover. There may be some additional considerations which could include:

  • Working at heights
  • Off-shore work
  • Dangerous or hazardous materials
  • Working in dangerous locations
  • Professional sports
  • Aviation

The reasons for needing life insurance could be considered to be higher if you work in any of these areas. Occupational risks are something to consider if you’ve got a family and you want to protect them.

How much life cover does an average dad need?

There’s no right or wrong answer to this question and everyone’s circumstances are different. It’s also true to say that everyone’s attitude to risk is very different so what you think is right, might be very different to someone else.

If you’re solely or partly responsible for taking responsibility for paying your household bills and supporting your family. You should make sure that you’ve got that covered if you’re not around or not able to provide an income.

Some of the main household costs to consider covering:

  • Mortgage repayments or rent
  • Bills and utilities
  • Monthly costs of living
  • Childcare costs

Other costs that may be incurred if you pass away:

  • Legal expenses (especially if business owner or self-employed)
  • Funeral costs
  • Loss of earnings

If you’ve not thought about it then it’s usually pretty simple to look at your monthly income and expenditure to figure out what you need.

Should a dad write a life insurance policy in to Trust or have a Will?

A fairly recent development is the ability to write a life insurance policy in to trust. This is a legal document that expresses your wishes for what you want to happen with the benefit payment from your policy.

Some of the main reasons why you’d want to write a policy in to trust are:

  • Inheritance tax planning: You could avoid having to pay IHT which could be up to 40% of your estate
  • Assign a Trustee: Your chosen trustee will be responsible for making sure that your wishes are actioned
  • Assign beneficiaries: You can select one or several beneficiaries who can receive a % of the benefit amount
  • Fast pay-out: A trust will avoid probate and means that your beneficiaries will receive their payment in weeks rather than months or even years

It is also advisable to have a Will in place which will help to outline your wishes should you pass away.

References:

* Office for National Statistics (Families and the labour market, England: 2018)

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/familiesandthelabourmarketengland/2018

** Child Poverty Action Group (The Cost of a Child in 2019) https://cpag.org.uk/sites/default/files/files/policypost/CostofaChild2019_web.pdf

*** https://www.gosimpletax.com/insights/self-employment-statistics/

**** Office for National Statistics (adults smoking habits in the UK: 2018) https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/bulletins/adultsmokinghabitsingreatbritain/2018#:~:text=In%202018%2C%20the%20prevalence%20of,2011%20(see%20Figure%201).

 

How are your life insurance premiums calculated

How are Life Insurance premiums calculated?

Author: Daniel Sharpe-Szunko

It’s important to understand how your life insurance premiums are calculated so you know what you’re paying for. Life cover is mainly designed to protect your family, home and business if anything happens to you.

Ultimately if you were no longer around to support your family or your income was impacted because of an illness or accident, these policies would relieve the financial burden. Life insurance, critical illness cover and income protection all come under the same umbrella of personal protection products.

Life insurance is the main type of cover because it’s the most common and the most affordable. This is simply because you’re much less likely to have to claim on a life insurance policy than critical illness cover or income protection.

A life policy is a contract between you (a policy holder) and an insurer. The policy becomes valid when premiums are collected (monthly or annually) after ‘acceptance terms’ are issued.

The policy is set to cover an amount (sum assured) over a period of time (term) to pay out to on death, serious illness or accident (depending on cover type).

What is life insurance?

A life insurance policy is simply a policy that pays out to a beneficiary (e.g. wife, children, partner or family) in the event of death. This pay-out is usually a tax free lump sum which can form part of your estate or this can be avoided using a Trust.

Life insurance also comes in 4 main forms which are all designed for different purposes depending on what you want to cover:

  • Level term (family protection) which is simply to protect your loved ones in the event of death
  • Decreasing term (mortgage protection) which is specifically designed to cover a mortgage (repayment mortgages only)
  • Whole of life is a more recent addition to the life insurance market which is a non-investment based guaranteed life cover
  • Family income benefit is also a newer type of cover which is specifically for your family and provides an annual income rather than a lump sum

All of these different types of life cover also cost different amounts per thousand pounds because of how they pay out. Whole of life is always the highest because it is guaranteed to pay out (as long as you continue to pay your premiums). Family income benefit is the cheapest because the amount of cover reduces faster than the other types of cover.

How are basic life insurance premiums calculated?

A life insurance premium is made up of several main factors before health and lifestyle are taken in to account. These are the things that would be taken in to account to give a base premium, which includes:

  • Age (Note: every time you pass a birthday your premiums will increase)
  • Smoker status (Note: No nicotine or nicotine replacement products for at least 12 months to be classed as a non-smoker)
  • Sum assured (amount of cover)
  • Term (length of policy in years or to age)
  • Type of cover (e.g. level term, decreasing term, family income benefit or whole of life)

Note: Gender– In February 2012 the EU Gender Directive made it illegal to use gender to differentiate between individuals for insurance

What else is used to calculate a life insurance premium?

There are also several other elements that are used to calculate the premium that a person (policyholder) will pay for cover. The following elements are behind the scenes calculations which will also be different for each insurance provider.

Underwriting process

When an application is submitted to an insurer, it will enter one of several potential routes depending on the disclosures. Generally the more complex the disclosures (e.g. medical conditions, hazardous occupations and dangerous activities) the more work that will be required at the back end.

The various types of underwriting processes are:

Underwriting Rules Engine (URE’s) which is where modern technology is used to apply a premium based on disclosures on an online application. Usually an insurer will allow a system (URE) to make a decision up to a set threshold (level of risk)

Manual underwriting is simply where an application will be referred to an underwriter (a person who assesses risk) to calculate a premium. An underwriter will also have certain limits that they will be allowed to go to before the next stage

Nurse screening or telephone medical will be used to gather additional medical evidence via a professional (e.g. nurse). These tests will usually include BMI (height & weight), blood sugar levels, cotinine test (smoker test), and blood pressure

Full GP report (medical report) which will be obtained directly from your GP or Doctor to provide a full breakdown of your medical history. Medical reports are usually for more complicated medical conditions or where symptoms are more severe

Once the underwriting process has been completed by whichever process, a premium will be offered based on information provided. Each insurer has a different set of parameters for each persons circumstances based on their ‘underwriting philosophy’.

Mortality and Morbidity data

All life insurance offices will have a team of actuaries who are mathematical people that calculate risk. These people will constantly be looking at trends in data which help them to make decisions for certain groups or risk categories.

Some of the most common types of morbidity are heart disease, cancer, chronic lower respiratory diseases, stroke, diabetes, pneumonia and influenza, Alzheimer’s disease, kidney disease and suicide.

Also co-morbidity is where two conditions occur simultaneously in the same person. The conditions don’t need to be directly linked to a cause, however they may often occur together. Some examples of co-morbidity are depression, diabetes and obesity which often occur together but are not likely to have the same cause.

There is no exact science to how an insurer will calculate a premium for an individual, however the insurer will use this information to calculate risk of death. It is a fair assumption for example that ‘a person in their 50’s is more likely to fall ill or have an existing medical condition to a younger person.’

Costs and margins

Any business will need to make sure that it is profitable and insurance is no different. There is a cost associated to running an insurance company and for processing an application. Each insurer will have their own costs and these will be different depending on the size of provider and how they operate.

There are several main costs that will be taken in to account when processing an application for life insurance. Some of the main costs will include:

Underwriting – a team of underwriters is a cost to a business so that must be taken in to account

Medical evidence – medical reports from a GP or doctor will costs anywhere between £60 and several hundred pounds

NTU rates (not taken up) – every time an application is processed that is either declined or not accepted, there will be a cost associated to that

Lapse rates (cancelled cases) – if a policy is cancelled within a certain period of time then it may then incur cost to the insurer

Generally bigger insurance providers are more efficient than smaller or newer insurance providers so can therefore drive lower premiums. Profit margins for life offices are difficult to project as they are forecasts based on future premium collections and potential claims.

For more information about this subject you can contact one of our team of experts at iam|INSURED on 01244 732896.