LIFE INSURANCE

When you commit to life insurance, you give your dependents and nominated beneficiaries financial security, helping them cover debts, bills, and funeral costs. This financial commitment could also help your spouse cover your mortgage payments or fund your children’s tertiary education.

The A–Z Of Life Insurance In The UK

Uncertainty and fear are part of life; they infiltrate daily existence leaving people stressed, anxious and powerless. The COVID-19 pandemic uprooted lives, economies, finances, health, and relationships, leaving many people feeling uneasy about their futures and the futures of loved ones. 

Cautious human beings push towards having financial control because it makes them feel secure. Most people want their children, spouse, or life partner to live comfortably if something unforeseen happens. Breadwinners wish to leave their assets as an inheritance, and business owners set their hearts on keeping the business stable in the event of their death. 

Benjamin Franklin:

“A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family.”

Life insurance policies ensure that we don’t uproot our dependents after death. It alleviates uncertainty and protects lifestyles. If you die during the policy’s term, your beneficiary gets paid a fixed sum of tax-free money, and it often matches the amount owing on your mortgage. You pay regular premiums during the policy term, and your beneficiaries only get a payout if you die during that period.

Life assurance covers the policyholder for life, and when you die, the payout is guaranteed and tax-free. The payout goes to your chosen beneficiary. Life assurance premiums are higher than life insurance because the payment is assured.  

What Is Life Insurance?

Life insurance is a financial contract drawn up between you (the policyholder) and an insurer. As the policyholder, you insure your life by paying monthly life insurance premiums. The life insurance cover ensures that your nominated beneficiaries are paid a lump sum of money upon your death. Life insurance is typically contracted to individuals, but some companies offer joint policies.

How Does Life Insurance Work?

Life insurance is often considered an asset that slots into your long-term financial planning. If you plan to purchase life insurance, it’s essential to know the finer details of what you are getting into, how it works, when your beneficiaries will receive this lump sum, and what payout option works best for you. 

Put simply — life insurance involves having to pay a premium (usually monthly) to the insurance provider for the duration of your policy. When you die, your named beneficiaries get paid. In some cases, such as term insurance, your payout is related to you passing away within the specified term. 

So, your medical history, age, and lifestyle factors affect how much you will pay and what your beneficiaries will receive. Life insurance companies invest these monthly premiums to get a return and yield a profit before paying out a life insurance claim.

Franklin D. Roosevelt:

“To carry adequate life insurance is a moral obligation incumbent upon the great majority of citizens.”

When you decide to take out life insurance cover, you choose how much you will pay each month for your insurance premium. The amount you pay depends on your life expectancy, critical illness, terminal illness, and lifestyle — typically, premiums are cheaper for younger, healthier individuals.

If you are a beneficiary of a life insurance claim, you must submit a claim form to the insurance company accompanied by a death certificate and the original policy. The process may involve an interview by the insurance provider to check that the claim is legitimate and did not fall under exclusions in the contract. Examples of these exclusions are death by suicide or criminal activity. The insurer pays the beneficiaries when the claim is validated and approved. The claim process can take up to two months to finalise. 

What Are The Benefits Of Life Insurance?

What Are The Types Of Life Insurance Policy?

1. 1Term Life Insurance
2. 2Whole-Of-Life Insurance
3. 3Income Protection Insurance
4. 4Mortgage Protection Insurance

Term Life Insurance

Term life insurance guarantees that the policyholder’s payment benefit is paid if death occurs during a specified time. It is the most rudimentary life cover because it allows you to determine how much cover you want and the period.

If you pass away within that time frame, the policy will payout. If you are still alive at the end of that time frame, you don’t get your money back. Instead, the policy ends. It may sound like a crazy investment idea, but none of us know how long we are going to live, and if by some chance we die prematurely, we have safeguarded our family from financial disaster. 

The five types of term life insurance are:

Whole-Of-Life Insurance

A whole-of-life insurance policy pays beneficiaries a lump sum — no matter when you die. Term life insurance only guarantees payment should you die within the specified term of the policy. Policyholders pay premium policies monthly, annually, or in a one-off payment.

The two main types of whole-of-life cover are:

1. Whole-Of-Life Balanced Cover
2. Whole-Of-Life Maximum Cover

Balanced Cover

With balanced cover premiums are fixed for the policy term when you opt for balanced whole-of-life insurance cover. You agree to the payout amount at the start of the life insurance policy. The amount does not change as you get older, and the insurance payout is set.

Maximum Cover

A maximum cover policy links to an investment fund. Your insurer invests your monthly premiums into a unit-linked fund or a pooled investment fund with the intention that they will generate a financial return. Insurers check on the fund’s performance regularly, and if it is not performing well enough, they might suggest increasing your premiums or reducing your payout amount.

Income Protection Insurance

Income protection insurance pays a percentage of your monthly income. This amount is usually 50% – 70% of your earnings. In the event of an accident or compromised illness, this percentage can be higher. Also, some insurers give a higher percentage on a base level of your salary, e.g., the first £50,000. Anything that you earn above that figure comes in at a lower percentage. 

You receive payments in place of that lost income, and the policy pays out until you are back at work, retire, die or reach the end of the policy term. While the policy lasts, you can claim income protection.

The waiting period is agreed upon when you take out income protection insurance. You can decide on any waiting period between 4 – 26 weeks, and if you opt for an extended waiting period, your monthly premiums are lower.

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Mortgage Protection Insurance

Insurance protecting your mortgage is insightful if you own property and are worried about burdening the family with the repayments in the event of your death. Mortgage life insurance differs from life insurance policies in that the insurer pays the mortgage lender and not a beneficiary. The payment made covers the mortgage or partial balance. This life policy only covers the bond on your physical property and does not give financial security to the family. 

There are three types of mortgage protection insurance:

• Unemployment insurance covers the mortgage in the case of redundancy.

• Accident and sickness policies cover your mortgage if you are seriously ill or injured.

• Combined policies cover both unemployment and illness or injury.

Life Insurance With Pre-Existing Medical Conditions

Medical Examination

When you apply for life insurance, you will have to answer questions regarding your current health and lifestyle and the medical history of your family members. You may also have to undergo a life insurance medical examination to answer questions, and a doctor will examine you. The medical examination includes: 

• The contact details of doctors that you have used in the past five years.
• All your previous medical conditions and when they were diagnosed, treated, and the outcome.
• Whether you drive. You will need to show proof of your driving licence. 
• Height, pulse, and blood pressure.
• Urine analysis
• Blood sample to detect possible elevated cholesterol, nicotine screening, or drug use, amongst others.
• An electrocardiogram (ECG). 
• Treadmill stress test. 
• X-ray
• Cognitive ability (if you are over 70)

High blood pressure, high cholesterol, obesity, and mental illness are pre-existing medical conditions that are likely to raise the price of life insurance cover. If these conditions are severe, you can be disqualified from life cover altogether. 

Even if you have some medical issues, you may still find life insurance companies that will take you on. It is important to study the underwriting process to know how much the policy pays for specific illnesses. 

An insurance underwriter is responsible for assessing risk on the insurer’s side. They decide on the risk involved and make sure that the premiums match the risk involved. Their risk assessments on potential applicants determine whether they are eligible for life insurance or not. They calculate premiums based on medical history, statistics, and actuarial science.

If you have pre-existing health conditions or severe medical issues, your rates may be increased because you pose a higher liabilty of dying while your policy is active. 

Most common pre-existing medical conditions

Expiry of the Life Insurance Policy

You must know what kind of life insurance policy you have because some policies expire after a certain period (on average 30 years), and then you must renew it. 

Why Should I Have Life Insurance?

One way to find out whether you need life insurance is to review your financial obligations and contributions and consider the impact of your death. Unless you have adequate policies and investments, you should have a life insurance policy.

Young couples with a mortgage have many years to pay for this asset. Children need education, and education costs money. Expenses like running a home, raising a child, contracts to be paid, food and transport, and other monthly payments all contribute to the cost of living.

Young couples may overlook their two incomes and jointly pay for these privileges. Consider living in the same lifestyle you are accustomed to but only having one income. If it is a frightening thought, you may want to consider taking out a life insurance policy. 

How Much Does Life Insurance Cost?

The price of life insurance depends on age, personal and family history, and lifestyle. 

Other factors that affect the price are:

• How much life insurance cover you buy

• The type of life cover you buy

• The length of the policy

The price of life insurance differs from individual to individual, but it is a highly affordable way of protecting the life and lifestyles of your family.

What Affects the Price of Life Insurance?

The table below from anorak life shows an example of why it is so important to take out life insurance early in life. The factor that most affects the price of life insurance is age. 

Table 1: Examples of monthly life insurance rates in the UK 

*Numbers are for information purposes only and may vary

Other factors that affect the life insurance premiums include your medical history and lifestyle: smokers, risk-takers, drinkers, certain illnesses like obesity, and mental ill-health. Although insurance companies offer these individuals life insurance, the premiums are sometimes double that of a healthy young person.

To really get most out of your protection, I would recommend you to visit also Life Insurance Dictionary section.

How to Get Life Insurance

Buying life insurance is quite a complicated procedure. It should not be a rapid and impulsive decision. Decide on the type of insurance that suits you and your family. Then decide how much insurance cover you want and the period you wish to continue paying for it. The next decision is where to buy the life cover.

When Is the Best Time to Buy Life Insurance?

What to Consider When Buying Life Insurance?

Buying life insurance can be confusing with many options and choices, and it is sometimes difficult to compare the different options.

The best time to buy life insurance is when you are young. This is because the premiums are lower, and you can go on with your life and forget about the small premiums you are paying. As people get older, they are far more likely to develop health complications, and so it is much more expensive to buy life insurance after the age of 35.

What Life Insurance Doesn’t Cover

Life Insurance FAQs