Life Insurance
Life insurance or life cover as it is also known, is an insurance policy that pays out a lump sum in the event that the insured person dies during the term of the policy.
It is a big misconception that you must have life insurance if you have a mortgage. Whilst it is always recommended if you have dependents, it is not mandatory. It may not even be needed so we always advise you to speak to an insurance expert like The Mortgage Pride to help establish if life cover is needed in your individual circumstances and ensure the most suitable policy is arranged for your needs.
Choosing a Life cover
Not all life insurance policies are the same so choosing the right one for your own circumstances is important. When choosing life assurance, you need to consider the reason you are taking out the cover. For example, are you taking it out to repay the mortgage in the event you die during the mortgage term or are you taking it out to provide your family with a lump sum to help them after you have gone?
This will help you to determine how much you want to be covered for and how long you want to be covered for. If you are covering your mortgage for example, then it could be you choose a term that matches the number of years your mortgage is going to run for and a benefit amount that matches the mortgage balance.
You may also want to choose a longer/shorter term and different benefit amount if you are taking the policy out for a different reason. This type is known as term assurance – i.e. you know the policy only runs for X number of years. A term assurance will only pay out if you die during the term of the policy. This is different to whole of life insurance.
Types of Life Insurance Policy
Next, you need to consider the type of insurance policy you need. There are three types:
- Decreasing – this is where the amount the policy will pay out decreases over the term of the policy. This is usually most suitable if you are taking the cover out to repay your mortgage upon death and you have a repayment mortgage.
- Level – this is where the amount of cover remains the same over the term of the insurance policy. For example, if you take out cover for £100,000, regardless of when you claimed during the term of the policy, £100,000 would be paid out to your family. This may be suitable if you are providing a lump sum to your loved ones or perhaps have an interest–only mortgage.
- Increasing – this is where the amount the policy will pay out, increases over the term of the policy based on inflation and the retail price index.
So, you have decided how long you want to be covered for, how much you want to be covered for and the type of policy you need. Now you need to consider the type of monthly premiums you want.
What Monthly Premiums options are there?
Many policies will offer you 2 types of premiums:
- Guaranteed – this is where your monthly premium will not change for the life of the policy providing no changes are made to the policy.
- Reviewable – this is where your policy will be reviewed at key times during the policy (for example every 5 years) and the cost of your monthly premium will be adjusted upon review so it could go up or down.
Another consideration is to decide if you want a waiver of premium added to your policy. This addition will ensure your policy remains in place should you be unable to work due to an accident or illness as it will pay your monthly premiums on your behalf in this situation after a defined number of months. After all, if you stop paying your monthly premiums, it is likely your life insurance policy will be cancelled by the provider and you will no longer be covered. Waiver of premium helps protect you against this.
What Else Do I Need to Consider?
Finally, you need to decide if you want to put your insurance policy in a trust. This means your loved ones can access the money paid out under the policy sooner. If you want peace of mind that your life cover is suitable for your individual needs, we recommend using experts like us at The Mortgage Pride.
We have access to a wide number of providers and offer individual, jargon–free protection advice tailored to your budget. We can also review existing policies for you as well, to give you the peace of mind that your current life insurance remains suitable for your needs.
So, if you want to let our Pride look after Yours, book a free initial call with us today.
FAQs
How much does life insurance cover cost?
Life insurance doesn’t need to be expensive – it can cost less than £10 per month. However, a number of factors will affect the cost of life insurance:
- Your age
- Your smoking status – if you use a vape or e-cigarettes that contain nicotine, it is likely you will still be classed as a smoker.
- Your height-to-weight ratio.
- How much you want to cover (the benefit amount)
- How long do you want the policy to cover you for (the term of the policy)
- Your previous medical history and pre-existing health conditions
- Added features to your life insurance policy such as waiver of premium (if you want the insurance company to pay your life insurance premium in the event you are unable to work due to accident or illness so your policy doesn’t lapse).
How much life insurance cover do I need?
It all depends on the reason for you taking life insurance. If you are taking life insurance to ensure your dependents and loved ones can stay living in your current home, we would recommend your life insurance matches your mortgage debt and term. Or it may be you want to leave a lump sum of money to your loved ones in the event of your death, in which case this can be a lump sum of your choice.
Can I put my life insurance policy in trust?
Yes, you can but it doesn’t mean it is the right thing to do. Putting your life insurance policy in trust can make it easier for your loved ones to access the money paid out from your policy quicker if you pass away. We would always recommend you seek professional advice about whether it is suitable to put your life insurance cover in trust based on your circumstances.
What if I need to make a change to my life insurance policy?
Some policies will allow you to make changes to your life insurance policy in the event of certain life benefits (e.g. divorce, moving home) without necessarily having to go back through the provider’s underwriting process. However, we always recommend you review your existing policies at regular intervals to ensure your policy remains suitable for you.
What does life insurance not cover?
Life insurance cover provides a lump sum in the event the policy holder dies during the term of the policy. Some life insurance policies also provide terminal illness cover which means the policy will pay out early if the policy holder is diagnosed with a terminal illness where the prognosis is less than 12 months. It does not pay any benefit If the policy holder is diagnosed with or suffers a critical illness such as heart attack, cancer or stroke, or if the policy holder’s income is reduced due to being unable to work because they have suffered an accident or illness.
Do I legally need life insurance for a mortgage?
No, but it is highly recommended by your mortgage lender especially if you have a partner or children. The only mandatory insurance the mortgage lender insists on is buildings insurance.
Can you get life insurance if you have a pre-existing medical condition?
Yes, however, it may be more tricky to obtain suitable cover and you may have exclusions placed on your policy relating to your pre-existing medical condition(s). It may also be more expensive to obtain life insurance. Like mortgage lenders, each insurance provider has their own underwriting criteria so it is important to seek advice from an insurance expert who has experience of and access to a number of different life insurance providers to ensure you are matched with the most suitable life insurance provider based on your personal circumstances.
*As with all insurance policies, exclusions and conditions will apply.