LIFE COVER LONDON
Ensuring you, your family and your mortgage is protected.
What is Life Insurance Cover?
Sadly if there’s one thing that’s certain, it’s that we’re all eventually going to die. It’s not a cheerful topic, but if anyone depends on your income, planning for their future if the worst were to happen could be invaluable – and life insurance could protect your family’s finances.
A Life insurance policy, which can also be known as life cover or life assurance, is a type of policy that protects your loved ones with financial support if you die.
It can help minimise the financial impact that your death could have on your family and offer peace of mind to those you care about most.
There is no investment element to life insurance policies and therefore no cash in value other than the amount paid out in the event of a claim.
Life Insurance is used to support and protect your family from the financial implications of a personal tragedy and can be particularly important if you have young children or dependents.
It can be used to cover a mortgage, other loans or to ensure that your family is protected from the effects of having to repay a debt after the main breadwinner has passed away.
Life insurance policies are designed to pay out a cash sum to your loved ones if you die or are diagnosed with a terminal illness while covered by the policy. It could help to support them deal with everyday money worries such as household bills, childcare costs, lifestyle costs or mortgage payments.
You choose the amount of cover you need and how long you need it for and who needs cover. the monthly payments is also a factor so it is important to ensure the premium is affordable.
Finding the right type of life insurance cover can be time consuming and tedious. With so many different policies available, sometimes people opt for polices which seem advantageous due to cost but in practice, are totally wrong for you.
As independent advisors in this field, we can ensure we assess your individual requirements thoroughly before recommending a well suited policy for you.
How does a life insurance policy work?
Life insurance products normally pay out a cash sum if you die or are diagnosed with a terminal illness while covered by the policy (provided your life expectancy is less than 12 months).
You choose the amount of life cover you need and how long you need it for. You can take out life insurance under joint or single names and you can pay your premiums monthly or annually.
You can also add critical illness cover (also known as serious illness cover by some providers), on to the policy, which will pay out a lump sum if you are diagnosed with a critical illness/ serious illness covered by the policy. You would need to refer to your policy documents and terms and conditions for the policy to see what conditions are covered.
You can take a combined life insurance and critical illness cover / serious illness cover policy or can take separate policies.
The monthly payments for cover will be calculated based on your personal details such as – your age, cover required and any medical conditions you have.
It is worth noting that there is no cash in value or investment element on insurance policies.
Do I need life insurance?
If there are people that depend on you financially, such as children or a partner who relies on you financially then a life insurance policy could be a way of providing them with support with a lump sum which they can access if you were to die.
Ultimately, you should consider whether your family could manage and have enough money to be able to support themselves if you were no longer around.
Things to think about would be – How much money would they need to cover childcare costs, household bills, lifestyle and day-to-day living expenses? Would there be any extra cost to be accounted for if you were no longer here?
If you’re retired and your children have long since flown the nest, you may have less need for life insurance, but for new couples, homeowners, young families, you should consider getting life insurance.
Is life insurance only for people with children?
Raising a child is one of the main reasons people start to think about life insurance.
But it’s not the only reason you should think about getting cover.
If you live with your partner and they would struggle to pay the mortgage and bills if you were to die, then you should consider life insurance.
If you were to be diagnosed with a serious illness then you should also consider the impact of this on your finances and any additional support you may need at home.
Life Insurance on level cover basis could be suitable if you have an interest only mortgage, as the cash sum would be for a fixed amount that could help to pay off the mortgage. Or it could also be used to help provide support for your family with everyday living expenses.
Alternatively, a Life Insurance policy with decreasing cover is designed to help cover a repayment mortgage so the amount of cover reduces roughly in line with the mortgage balance.
Please remember that life insurance is not a savings or investment product and has no cash value unless a valid claim is made.
What types of life insurance are available in the market?
Decreasing cover Life Insurance is often used to help protect a repayment mortgage because the amount of cover reduces roughly in line with the mortgage balance.
Level cover Term Life Insurance is usually chosen to provide financial support to loved ones or cover an interest only mortgage. The sum assured remains the same throughout the policy term, and the lump sum could be used by your family to help support them pay everyday living expenses such as household bills, rent or childcare or it could be used to help pay off a mortgage.
Term life insurance
- There is usually a maximum term you can apply for, which will vary from provider to provider.
- The life insurance plan would pay out a cash lump sum if you die during the period of cover.
- You can have the life policy on a decreasing term, level term or increasing term
Whole of life insurance
- Life Insurance Cover lasts for the whole of your life so the cash sum from a valid claim will be paid whenever you pass away, rather than during a specific period of cover
How much cover should I get?
The amount of life cover you need may be determined by the monthly payment you can afford, but a good rule of thumb is to aim for 10 times the personal annual income of the highest earner.
This may seem high, but it’s likely to leave enough money (after the impact of inflation) to help support your family to cover mortgage repayments and expenses, such as childcare costs – which may be a new outlay, in the event of your death.
It could also go a way to supplement and support the income of those left behind if they had to then leave employment, for example to care for children or relatives.
To help you calculate a figure that works for you, it’s worth ensuring any policy covers the following:
- Any outstanding debts that need to be paid off (including mortgages, unless they're covered by a separate insurance policy).
- Immediate and regular outgoings your dependants would need to pay.
- Future spending you would have wanted to make, eg, support for university costs for the kids.
- Any additional expenses a death may trigger, such as funeral costs.
How long should the term be?
A life insurance policy covering children should last until they no longer be reliant on you/your partner, so that’s generally at least until they finish full-time education.
If you’re planning on having more children you may want to estimate when that’d be rather than trying to extend or get a new policy later. This is because insurance cover becomes more expensive the older you get.
To cover a partner it should last until the year you expect to reach pensionable age. Don’t feel obliged to cover a round number of years, eg, policies can be for 17 years
Life Insurance Key Points
Premium Types
When you buy life insurance cover you will be given two choices of monthly payment (premium) – guaranteed or reviewable. If your premiums are guaranteed, your insurer will never change the price, so you’ll know what you’ll be paying over the life of the policy. Reviewable premiums, on the other hand, often cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially become costly as you age.
Disclose all Health Conditions
It’s important you’re open and honest with any information you provide, to ensure any policy that’s set up for is fit for your needs – and will cover you if the worst were to happen and your dependants needed to make a claim.
Likely things you’ll need to disclose when getting a quote for a policy include your age, whether you smoke, your occupation and your health history. The insurer then uses this information to determine whether it will cover you and a price.
If you’re comparing quotes yourself you’ll usually answer a few basic questions to see initial prices, but will then have to disclose much more detailed information if you then go through to the insurer to apply, which could affect the price/the decision to insure you.
As each insurer has its own rules on pre-existing medical conditions, if you’ve a complicated medical history, it’s worth getting advice from a broker. This is helpful as brokers tend to know which insurers will cover your condition(s), and at the best rates.
If you’re over 50, you can get a policy with guaranteed acceptance – but it’s much more expensive
If you don’t want to disclose health issues and are 50 or over, an over-50 policy is an alternative which doesn’t require any health questions and there’s guaranteed acceptance up to age 80 or 85. Yet to compensate these are much more expensive, you can’t claim in the first one or two years and you could get back less than you pay in.
Provider Research
It is also useful to do research on the life provider and look at how many life insurance claims have been paid out, and their claims process.
Our advisers at London FS will be able to provide you with a report for the providers that are suitable to show you the statistics and any additional services the policies have, and if there is an extra cost or the services comes as part of the policy.
Examples of this could be income protection, second medical opinion if you or your family have a health condition, dedicated nurse access if you suffer with a serious illness and may need extra support at home.
Joint v Single Life
Level term life insurance policies can either be taken out to cover just you on a single life basis, or yourself and your partner on a joint life basis.
A joint policy is often cheaper, however it only provides one payout, usually on the death or diagnosis of a terminal illness of the first policyholder, when the cover then stops. This is usually best suited if your partner is your only dependant and you’d have no one else to leave a second payout to.
However, if you had a joint policy and were to later split with your partner, you’d need a new single policy, and this could be more expensive as it would be based on your new age and health.
Taking out two single policies is usually more expensive, but here you would get two payouts if you were both to die during each policy term. Equally it covers you personally, so works independently to whether you are still together with your partner or not.
Putting your policy in Trust
If you die with an active life insurance policy, the payout forms part of your estate, which could mean it’s hit with inheritance tax. Yet, in many cases it’s possible to avoid this by writing the policy in trust, if it’s done at the time the policy is taken out.
If the policy is written in trust, the insurance pays out directly to your named beneficiary/s, , so it never becomes part of your estate, which often speeds up the payout.
It’s relatively easy to do as most insurance policies include the option (and papers) for writing in trust directly at no extra charge.
Note that there are different types of trusts and they can be difficult to change or cancel, even if all your beneficiaries agree, so think carefully about who a payout would be going to.
Reviewing the cost of your policy
- You took out a policy direct from a bank or insurer (and your health is largely unchanged). If you took out a policy via your bank or direct with an insurer without getting multiple quotes first, it’s likely you could stand to save from switching policies. Plus, there’s no harm in running some new quotes to check. If it shows you can save (make sure the cover is at the same level), all you need to do is set up the new cover. Once it’s in force, cancel your existing policy.
- You’ve since quit smoking, or you no longer have a risky job. Non-smokers pay a lot less than smokers, because they’re a lot less likely to die during the term. To count as a non-smoker, you need to have been genuinely nicotine-free for at least a year and in some cases up to five years, so always check your insurance policy. Some providers will review the premium for existing customers if they have stopped smoking and meet the requirements of the provider. Therefore one year after you quit, get a new quote and see if you could save big. But don’t be tempted to lie. If you die and it is discovered you had been a smoker, it could invalidate the policy. If you are seriously giving up, it’s a good idea to get it noted on your medical records to back up any potential claim.
When will you life policy pay out?
Simply put your life policy regardless of the if it is term or whole of life policy pays out upon your death. The insurer will request a copy of the death certificate.
How can London-Fs Help?
Book a call with an advisor..
Speaking to one of our advisors couldn’t be easier. We always advise speaking to us over using comparison websites to obtain quotes. This gives you the peace of mind you have an impartial, qualified advisor looking at your individual and personal circumstances ensuring you take out the right cover at an affordable premium.
If you would like an informal chat, please use the contact form on our site, drop us an email: enquiries@london-fs.com or give us a call +44(0)208427 5057.
We can run you through what paperwork will be required, discuss any questions you may have about taking out a life policy or you may just want a professional, independent opinion. In any instance we can help.
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