Life Insurance

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Life insurance is one of the most straight forward types of insurance or personal protection policies that you can buy because of the very simple way that it pays out a tax free lump sum. Generally there are only two ways that you would ever make a claim on a life insurance policy which are:

Upon death

If you were to pass away then your children, partner or spouse would claim the tax free cash benefit of the life insurance policy that you have in place. This can be used for things like to pay off the mortgage or an amount to cover the loss of your income.

Diagnosis of a terminal illness

Some life insurance policies have a built in benefit called ‘terminal illness’ which is designed to pay out for anyone diagnosed with a terminal illness with less than 12 months to live. This simply enables that individual to arrange their personal affairs and to ensure that the proceeds of the policy are paid to the people that they want.

Generally a life insurance policy will pay out a tax free cash lump sum which also means that the benefits will not form part of the policy holders estate.

It is difficult to say that anyone absolutely 100% needs life insurance, however it is strongly recommended that we all should consider some form of life insurance and especially for those with dependant children or financial commitments. The Financial Conduct Authority which is the current regulator also strongly recommends that people should consider taking some form of life insurance.

There are a number of key factors that should be considered when looking at your on life insurance needs, such as:

Dependants

Life insurance is especially important for parents with a young family or dependant children to make sure that they are financially secure in the event that your income is lost.

Home (Mortgage/Rent)

If you are a home owner (mortgaged) or tenant then you should also consider life insurance to ensure that your property is protected. If you were unable to pay your mortgage or rent due to loss of earnings then it is important to consider what would happen to your family.

Business

Most business owners also have a strong need for life insurance to cover a number of eventualities, especially if the company is limited or a partnership. This is one of the least bought types of life insurance but still incredibly important to ensure that your business does not suffer if you are not around to keep it going.

You should ideally speak to a life insurance expert or adviser who will be able to assess your needs to apply the most suitable cover for you and your needs. There are a number of different types of life insurance policies to consider which include:

Level term life insurance

Also known as ‘family protection’, level term life insurance is one of the most common types of cover as it will always pay out a set figure regardless of when you make a claim during the policy term (years).

Decreasing term life insurance

Commonly known as ‘mortgage protection’ because of the fact that the sum assured (cover amount) decreases throughout the term of the policy (years) generally in line with your mortgage.

Family income benefit

This is a lesser known form of life insurance as it is a more modern version of cover but it is also an incredibly clever way for people who can’t afford full cover to get some life insurance.

The simple fact of the matter is that life insurance is cheapest when we need it less, which is when we are young and healthy. There are a few simple life events when you should consider life insurance more strongly, such as:

  • Buying a home
  • Having children
  • Changing jobs 

Most people unfortunately in our experience buy or apply to buy life insurance when it is too late because they are either older or have been diagnosed with a medical condition which will mean that premiums can increase.

Life insurance is one of the highest pay out rates of all insurance claims (currently approximately 99%) because of the fact that claims are fairly simple and that it is underwritten at application stage.

Most life insurance providers produce annual claims statistics which means that you can easily see how good or bad each of them are at paying out. Claims statistics for life insurance can be found on the internet and are made public by most insurance companies.

Life insurance is one of the most important financial products for anyone and especially important for those with children, mortgages or rent and businesses. If you are a parent, homeowner / tenant or business owner then you have a genuine need to consider some form of life insurance. Most people consider life insurance to be too expensive or think that it simply will not pay out in the event of having to make a claim, both of these assumptions could not be more wrong.

Currently the life insurance market is highly competitive and therefore premiums are lower than they have ever been for the vast majority of us. The assumption for a life insurance premium is in fact ‘four times higher’ than the actual cost of cover which is astonishing.

Also, life insurance is one of the highest paying of all types of insurance policies with approximately 99% of claims paid out with most life insurance providers. Claims stats are regularly released for the majority of top life insurance providers so you can clearly see how likely your provider is to payout at claim stage.

The cost of a life insurance policy can vary dramatically depending on several main factors which can have a big impact on your premiums. The key elements which will determine the cost of a life insurance policy are:

  • Sum assured (amount of cover in £’s)
  • Term of life insurance policy (years)
  • Type of life insurance cover (e.g. Family, Mortgage or Whole of Life)
  • Medical history
  • Health (e.g. BMI, Smoker status, alcohol intake etc.)
  • Other risk factors such as extreme sports or dangerous jobs

FACT: Statistics show that most people think that life insurance is roughly four times more expensive than it actually is… life insurance might be a lot cheaper than you think!

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