When taking out a Life Insurance plan, it's inevitable that you will have a number of questions to ensure you choose the right policy for your needs. Here are some of the questions answered.
Life insurance, also known as life cover, pays out a sum of money on the death of the insured person. There are two main types of life insurance:
The type of life insurance most suitable for you is dependent on your personal circumstances.
It might even be prudent to take out more than one insurance policy. If you are looking to cover a repayment mortgage and provide a fixed lump sum for your dependents, it might be appropriate to take out a decreasing term life insurance policy to pay off the mortgage and a level term life insurance policy to go towards the living expenses of your dependants.
Rather than take out a traditional life insurance policy which pays out a lump sum, you might want to consider a policy that pays your dependants a regular monthly income. A family income benefit policy (FIB) is a type of life insurance that provides your beneficiaries with a regular, tax free income for a set period of time if you were to die. A monthly income from a family income benefit policy might be easier for beneficiaries to manage, rather than a lump sum from a life insurance policy.
The main benefits of a family income benefit policy is that it can be more affordable than a life insurance policy. The beneficiaries do not have to worry about managing or investing a lump sum of money when someone dies.
This type of insurance would provide a lump sum payment, that is tax free, in the event of certain serious illnesses being diagnosed (illnesses covered will be predetermined in your policy). Critical illness cover can be added to a life insurance policy for an additional premium.
The benefit of critical illness insurance is that you will receive financial support in the event of a serious illness. This will enable you to focus on your recovery without having to worry about paying the bills and your day to day living expenses.
If you are married or in a long term relationship, it might be worth considering a joint life insurance policy. With a joint policy, the couple will be covered with life insurance under the same terms.
In most cases, a joint insurance policy will be cheaper than taking out two separate policies. It is important to understand that under a joint policy, if a valid claim is made, only one lump sum is paid. This is usually on a “first death” basis i.e. payment is made when the first partner dies during the insurance policy term.
After the initial life insurance pays out, the surviving person would be left without cover. Applying for life insurance later in life can be expensive as premiums increase with age.
Life insurance is designed to protect your loved ones by providing them with the financial security they need if anything happens to you. It pays out a lump sum if you die during the policy term. The insurance payout can be used to pay off the mortgage, support children and other dependants, cover your funeral costs and much more.
When deciding if life insurance is right for you, you need to determine whether your dependants would be able to cope financially if you were not around. If you have a partner, children or relatives who are dependent on your income, the likelihood is that you should consider life insurance, as it will help your family in the event of your death. Whereas, if you have no dependants and no one relying on you financially, life insurance is probably not a priority.
The amount of life insurance required is dependent on your circumstances and various different factors, but the general rule of thumb would be 10x your salary.
Questions to ask yourself when considering the amount of life insurance you need include:
The cost of life insurance is dependent on several factors including the amount of cover you need, type of policy, the insurance term (length of the policy).
Also, when applying for life insurance cover you will need to complete a lifestyle questionnaire. Insurers will want to know information such as:
All these factors will be taken into consideration and used to calculate the cost of your life insurance premiums.
If you take out a fixed term life insurance policy, usually the premium payable is guaranteed. This means that the amount you pay on a monthly basis is fixed and should not increase throughout the term of the policy. Although, it is always important to check the small print of any life insurance policy you are considering to make sure that this is the case.
It is important to make sure you review your life insurance cover on a regular basis, to make sure you are adequately covered and your family are fully protected. This is especially important if your circumstances change such as; getting married, divorced, purchasing a house or having a child.
Some policies do allow you to make amendments to your life insurance policy, but depending on the changes you are making, this might impact the monthly insurance premium. Again, it is necessary to check the small print on any life insurance policy you are considering, to make sure they offer the flexibility that you need.
If you are thinking about cancelling your current life insurance policy and replacing it with an alternative cover, it is important to remember that you will have aged since you took out the original life insurance policy and your health status may have changed. This could significantly impact the cost of your monthly insurance premiums.
Life insurance is not subject to either income tax or capital gains tax. However, it is considered to be part of your “estate” therefore your loved ones may need to pay Inheritance Tax.
The value of your estate is the sum of all your assets, minus any debts and funeral expenses. If your estate, including any life insurance payout, is worth less than the threshold of £325,000 no Inheritance Tax is payable. For anything over £325,000, Inheritance Tax of 40% will be charged.
You can separate your life insurance from your estate, if your life insurance policy is written in a trust. By putting it in a trust, your life insurance payout will be exempt from any Inheritance Tax. If you want to put a life insurance in a trust, it is best to initially speak to your life insurance provider, sometimes they can do this for you for free, or alternatively, you can speak to an independent legal advisor.
Another advantage of putting your life insurance in a trust, is that your dependents will receive the payout quicker as it is not subject to the same tax and legal proceedings as your estate.
Field marked * is optional
We will now match you with suitable life insurance providers who will call to discuss your requirements.
If you are considering Life Insurance, you might also be interested in Will writing.
We will now match you with suitable Will Writers who will be in touch to discuss your requirements.
In the meantime, why not head over to our Wills section? It can provide you details regarding types of Wills and what to include in a Will.